Yes, we all hate doing our tax returns. But with the 31 January deadline fast approaching for UK freelancers, it’s time to bite the bullet.
And to help you out, we’ve teamed up with Coconut, to offer eight simple rules that will help you get your return in on time, with a minimal amount of fuss.
Meanwhile, to make things even simpler next year, we’d urge you to sign up to Coconut. This superb service, which combines accounting and banking in one simple app, offers automatic expense categorisation, receipt capture and tax estimation as part of every free account. Sign up and try it for free today, and you’ll see just how easy it is.
1. Sign up for an online account
If it’s your first time submitting a tax return, and you haven’t yet registered for an online account with the HMRC website, you really need to get moving.
Head to the new user registration page at gov.uk, where you’ll be asked for your unique taxpayer reference (UTR); this can be found on letters you’ve received from the HMRC.
You’ll then be sent an activation code through the post. This can take up to 10 days, though, and you can’t log in online without it, so don’t delay!
2. Claim all your expenses
It’s vital to claim all the expenses and allowances that you’re entitled to, or you’ll end up paying more tax than you need. So be as thorough as you can in going back through your old receipts, bills and other paperwork.
In future, signing up to Coconut can be helpful with this process, as it automatically categorises all of your expenses and then offers an option to download your data in a format that's appropriate for both HMRC and an accountant.
3. Don’t take the mick
What can you legitimately claim as a deductible expense? You’ll find a broad list of allowable expenses here, but the general rule is that something can only be considered an expense if it is "wholly, necessarily and exclusively" incurred in the running of your freelance business.
For example, a subscription to the Adobe Creative Cloud would normally be considered a suitable deductible expense for a freelance graphic designer. A subscription to Netflix would not.
Membership of design organisations, accountancy and legal fees, rent of office space, website hosting, and travel to design conferences are also things you might legitimately claim for. For further clarification, check out Coconut's in-app advice on every type of allowable business expense.
Also note that, if you work from home, you can claim for the proportion of the lighting, heating, phone rental etc you used during work (rather than non-work) hours.
4. Include other income
Don’t assume the HMRC are only interested in payments from corporate clients. Got a sideline selling T-shirt designs on Threadless, prints on Etsy, or templates on Creative Market? If you’re doing enough of it, then you need to declare it.
It may be “just a hobby” to you, but if it’s earning you money, then that money is taxable income just like any other payment you receive.
5. Double-check your figures
In your day-to-day design work, you’d never submit a final piece to a client without double- and triple-checking everything thoroughly. So don’t do it with your tax return either.
In future, you may be investigated, and asked to back up all your figures with receipts and bank statements. So it’s much better to check all your figures match now than have to repent for a mistake at a future date.
6. File early
Maybe you’re used to filing commissioned work with your clients at 10 to midnight on deadline day. But that’s really not advisable when it comes to your tax return.
On the days leading up to 31 January, the HMRC’s website typically slows to a crawl and crashes repeatedly. And unfortunately, screaming “Not fair!” at your computer screen won’t make it go any faster.
So the sensible thing is to just sort out your tax return at least a week before the 31st, and basically, the sooner the better.
7. Pay early
It’s easy to forget that the 31st of January isn’t just the deadline for filing your tax return, it’s the date you must pay any money you owe to the HMRC too. And while it would be lovely if bank transfers were always instant, in the real world that doesn’t always happen.
So even if it’s generally your instinct to hold on to any cash until the last possible minute, in this instance it’s best to cough up what you owe at least a couple of days early, just to be on the safe side.
8. Pay for advice
If you’re a sole trader rather than a limited company (find out what the difference is here), and your accounts are very simple, then it’s perfectly possible to complete your own tax return by yourself.
However, if you have multiple sources of income, and/or decide to operate as a limited company, then you’ll probably benefit from paying an accountant to do it.
It’ll free up your time to do more designing, you’ll have peace of mind that you haven’t missed any subtleties, and if you use an app like Coconut, this can help minimise the amount of work your accountant needs to do, and thus the amount they ultimately charge you.