How Much Tax You Should Put Aside If You're Self-Employed & Employed At The Same Time

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Everyone’s talking about how to make money online, how make money freelancing, how to work for yourself, make money from your side hustle… the list goes on. You probably know this, because I’m sure you’ve Googled it too. I know I have. So many of us are choosing to (or in some cases forced to) become self-employed, and ditch the 9-5 and work for themselves. But often times you end up having one foot in and one foot out of the job force until things pick up. This can mean you’re employed but also self-employed at the same time. But how do you do your taxes that way? I Googled it, and got a bunch of results that were throwing around a bunch of different numbers and percentages, often in US dollars. So I’ve compiled a bunch of useful information to help you out. Here is an in-depth look at how to easily do your taxes as a creative living in the UK. Even if you’ve never done it before and have no idea what you’re supposed to do.

This article will cover:

  • What’s the difference between Self-Employed & Employed?

  • What if you work through an agency or umbrella company?

  • How much should you put aside for your taxes

  • What can you claim back on your tax return?

  • When do I need to file my taxes?

  • What to do if you’re self-employed and employed at the same time

  • What happens if you don’t do your taxes?

  • How to register as self-employed

What’s the difference between Self-Employed & Employed?

Being Self-Employed, also known as a Freelancer/Contractor, while working as an employee at a company, also known as a 9-5, is actually very common. Especially now, with a increase of people wanting start a side-hustle to get that ‘online bag’ and work-from-home.

Let’s say you’ve got a day job working at a retail store, but you make and sell your paintings on the side. Or let’s say you work in an office during the week, but run your own private art lessons on the weekends. These are examples of being employed and self-employed. If you haven't read the book Side Hustle by Chris Guilliebeau, you better. He writes a no nonsense guide on how to build a side business and make extra money without quitting your day job. The audio book is good too.

You can be employed even if you’re on a short contract, or working flexible or part-time hours. Although, if you’re managing a lot of different short contracts and are responsible for logging your hours and completing a timesheet, you’re most likely self-employed. This course helps you make money from your creative projects.

Sometimes though, your work status may not be so clear.

You’re likely Employed if:

  • You’re given an employment contract and work for a company or business.

  • The company or business is not your own and you’re not a partner.

  • You’re told what work to do, as well as how, where and when to do it.

  • You have to do the work yourself or in a team.

  • You can be shifted from task to task throughout the day or week.

  • You’re contracted to work a set number of hours, get paid a regular wage or salary.

  • The person or company you work for allows you time off when you’re sick and gives holiday hours which are usually paid according to the terms of your employment.

You’re likely Self-employed if:

  • You’ve agreed to carry out the work or project, but you can outsource parts or all of the job for someone else to do.

  • You might have several clients or customers at the same time. You’re allowed to do the work how, when and where you like, as long as you meet the agreed deadline.

  • You may be a sole-trader and responsible for the business’s success and failure.

  • You source and provide your own equipment or specialty supplies to fulfil the work.

What if you work through an agency or umbrella company?

There is information on what your position is if you are working through an agency or umbrella company in the employment section.

How much should you put aside for your taxes

If you’re Employed, your National Insurance Contributions (NIC) and Income Tax will already be deducted from your salary through a PAYE scheme before you get your paycheque. Check your payslip to see how much tax was taken off.

But if you’re self-employed, how do you pay yourself and then pay any tax due? It depends on how much money you’ve made in profit during the year. This is calculated by how much money you made in total, minus how much money you spent on the business (nothing for personal use), and the rest is profit. You pay tax on your profit.

See this handy chart by The Crunch to figure out how much you should probably be setting aside to pay your taxes based on your profit.

What can you claim on your tax return?

In the UK, there are quite a few things you might not have known that you can claim as business expenses as someone is Self-Employed.

  • Office expenses. Things like printing costs (including printer ink), and postage.

  • Business premises

  • Travel

  • Stock and materials

  • Legal and financial costs

  • Business insurance

  • Marketing

  • Clothing

  • Staff costs

  • Subscriptions

How long does it take to do your taxes?

The length of time it takes to file your taxes can vary. I spending some time gathering all your documents first. Maybe this’ll take a while depending on how organised you’ve been through out the year.

Docs to help you get prepared:

  • UTR Number

  • Government issued ID

  • NI Number

  • P60 or P45

  • A record of your annual income

  • A record of your annual expenses

  • Your current debts or loans owed

  • Receipts/invoices to do with your business

  • Amounts donated to charities or invested

After you’ve got all your docs and receipts together set aside a couple hours to go through the tax sheet and answer the questions.

You can also lighten the load by asking for help from an accountant who deals with Freelancers. Accountants may be pricey, but you can actually claim all or part of the fee on your Self Assessment (self-employed) as a business expense. Win! You can save yourself time by using accounting software or money management tools like the ones below. I currently use Wave for my business.

When you file your Self Assessment, you may be asked to provide a single number for your income and for your expenses. But you may also be asked to break these numbers down. That’s why it’s always good to keep a record of your ins and outs by keeping your receipts. But there’s an app for that, if papers not your thing.

Tools to make it easier to file your taxes and keep track of your money:

When do I need to file my taxes?

Tax years are from April 6 to April 5. The last tax year started on 6 April 2018 and ended on 5 April 2019.

HMRC has some pretty strict deadlines for when things are due:

What to do if you’re self-employed and employed at the same time

In a nutshell, you pay tax on your employment income through PAYE and you pay tax on your self-employment profits via the Self Assessment system.

When it comes to filing your tax return, you must complete your Self Assessment and include your employment income (and whatever taxes were paid) as well as any other type of income, not just the self-employment income as it is a ‘return’ of all of your taxable income for the year.

What happens if you don’t do your taxes?

You'll get a penalty of £100 if you’re up 3 months late filing your tax return. The later it is the more you’ll pay and they’ll charge interest on top.

HMRC can go back as far as 4 years to investigate your taxes and claim money. In some special cases, they can even go back 6 years.

Things that can happen:

Now you can see why everyone gets crazy around tax season. Basically just don’t be late on your taxes or pay what you owe in instalments if you can’t pay it all at once.

How to register as self-employed?

If you’ll be working for yourself, through an agency, or as a contractor, or freelancer, you might need to register for Self-Assessment and obtain a UTR number to be self-employed. The link below tells you where and how to register.

Register for Self-Assessment

Hopefully you’ve seen or read some useful ideas here to help you on your way to becoming your best future you and managing your money. If you’ve found this useful share it with a friend, that makes us happy. And if you're not already, join our mail squad for more posts like this.

I'd love to know, what are some of your goals this year?

#MakingMoney #HowTo #AdviceForArtists

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