Tax Tips for Freelancers: Navigating Self-Employment Taxes

30th October 2023

The self-assessment tax return deadline is on 31 January 2024, so it’s that time of year where all self-employed and freelance workers should be thinking about their finances again.

Maximising tax efficiency when self-employed can seem daunting no matter how many times you do it, but it really doesn’t need to be. Here are some of our most important suggestions and tips for people wondering how best to handle self-employment tax efficiency. 


Double check previous tax years

It is good practice to routinely check through previous tax statements and ensure that you haven’t overpaid at any point. 

To amend a mistake on a tax return you have already filed, you must correct it within 12 months from the day that you filed it. If that mistake has meant you’ve overpaid on your tax, you may be able to apply for ‘overpayment relief.’ 

If you notice an error that has led to overpayment within the last four tax years, you can manually claim a refund for these overpayments. You will need to pay close attention to your previous documentation to guarantee that you have overpaid, and you will need to write to HMRC claiming your refund. 

To qualify, you will need proof of overpayment, confirmation that the details you’ve supplied are correct, and how you would like the repayment to be made. 


Ensure you are claiming all deductibles on your business

While this may not apply to everyone, always make sure you are claiming back as much as you can on your business. 

There are a lot of operating costs that may qualify as deductible expenses for freelancers and the self-employed, including office or travel costs. If you have staff members, or an outsourced personal assistant or bookkeeper, these expenses could increase. Claiming these back could help significantly reduce expenditure and improve cashflow. 

For example, you may be able to claim back some expenses on office, travel, staff, or clothing costs, depending on your circumstances. You may even be able to claim back some costs associated with working from home or for replacing certain equipment.

Check the HMRC website for the full list of potential expenses you could claim back. 


Remember to claim higher rates of pension tax relief

Pension tax relief for the self-employed isn’t always explained very simply, and many people don’t know that you need to manually request the activation of higher-rate pension tax relief. If you are a higher-rate taxpayer, then you are eligible for this extra tax relief on your pension contributions.  

To do this, you will need to claim higher-rate tax relief through your self-assessment tax return or by contacting HMRC directly. This will then give you a further 20% relief on your pension contributions, bringing your total amount of tax relief up to 40%. 

In real terms, this means that a pension contribution of £1,000 will only cost you £600, with the other £400 covered by tax relief from the government. This same contribution would cost a basic rate taxpayer £800, with £200 supplied through relief. 


VAT Registration

If you run your own business or work as a freelancer, you have the option to register for VAT, which will list your business as active in terms of production and sales with the government. If your turnover is greater than £85,000 by the end of any month, you are required to register for VAT within 12 months of that moment.  

There are both pros and cons to voluntarily registering for VAT, but one of the most important aspects is that you can reclaim some of the VAT on the goods and services purchased by your business. 


National Insurance Contributions for the self employed

Almost all self-employed workers pay Class 2 National Insurance contributions (NICs). This is what you will pay provided your profits are more than £6,725, and it equates to £3.45 a week. 

Despite there being a threshold, you may wish to voluntarily pay your Class 2 NICs even if you earn less than that figure to help build your state pension. To receive the full amount of the new state pension, you will need 35 qualifying years of NICs by the time you reach state pension age. 

Many self-employed workers will also pay Class 4 NICs, which require workers to make a profit of more than £12,570. You will pay 9% on profits between that figure and £50,270 and then 2% on any profits over that. 


Edwards can help manage freelancer tax obligations

If you’re unsure about the process of self-assessment, VAT, or any other business tax for freelancers or the self-employed, get in touch with the experts at Edwards Accountants today. 

Our team have extensive knowledge on all things tax, and our corporate tax planning team will be able to guide you through the process of maximising efficiency. Reach out to our team today to find out exactly how we could help you this tax year. 

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