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Where Taxpayers and Advisers Meet

Freelance tax advice - total newbie

marcandre
Posts:6
Joined:Mon Mar 09, 2020 5:44 pm
Freelance tax advice - total newbie

Postby marcandre » Mon Mar 09, 2020 5:50 pm

Greetings,

I have a few questions regarding my situation.

I have been doing some freelance writing for a UK-based company for a couple of years now - the gross income from that was tiny since I only wrote for them every once in a while. I earned less than 200 gbp in a year; due to the amount, I had not declared the income.

Now I'm considering stepping up the amount of work I do, and have ALSO been given the opportunity to do similar freelance writing for a Canadian company. Both companies pay via PayPal. How much money will I have to earn from this freelance work before I need to declare as self-employed? I have been told by a 3rd party that I don't need to do anything until I earn more than the tax-free personal allowance of 12,500, but I don't think that's quite right. Can anybody clarify for me?

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Freelance tax advice - total newbie

Postby Lambs » Tue Mar 10, 2020 8:38 am

M,

You have a legal obligation to notify HMRC if you are chargeable to tax in the UK. Your post does not cover your nationality or tax residence status but assuming you are a UK citizen resident in the UK, then if your total taxable income is less than the Personal Allowance, you should have no personal tax liability and be under no such obligation. ***HOWEVER, PLEASE READ THE FURTHER COMMENTS BELOW WHERE PEOPLE FAR SMARTER THAN I HAVE POINTED OUT THAT, WHEN SELF-EMPLOYED, YOU HAVE TO KEEP AN EYE OUT FOR SELF-EMPLOYED NATIONAL INSURANCE CONTRIBUTIONS AS WELL. (What can I say? Must have been an off-day)*** For this purpose read 'chargeable' as 'liable to pay', thanks to the exception at TMA 1970 s 7(7).

However, HMRC may require you to file a tax return in any event and if it does then you must either complete and return it, or convince HMRC that one is not required because the level of your income does not warrant a return.

Note that HMRC says that you need to fill in a tax return if your self-employed income is more than £1,000 in a year -

https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

However, there is NO legal basis for this assertion. In the absence of a notice from HMRC to file a tax return, you really need to notify HMRC only if you have tax to pay.

With regards,

Lambs

marcandre
Posts:6
Joined:Mon Mar 09, 2020 5:44 pm

Re: Freelance tax advice - total newbie

Postby marcandre » Tue Mar 10, 2020 11:47 am

Thank you Lambs for your detailed response.
Note that HMRC says that you need to fill in a tax return if your self-employed income is more than £1,000 in a year -

https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

However, there is NO legal basis for this assertion. In the absence of a notice from HMRC to file a tax return, you really need to notify HMRC only if you have tax to pay.
If I understand this correctly, although HMRC state that we need to register as self-employed and file a return if our self-employed income is more than £1,000 in a year, in reality, there's no reason to do so unless we have tax to pay (ie, as soon as we, as tax residents, earn more than the personal allowance)? If so, why do HMRC make that initial statement?

Best,
M

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Freelance tax advice - total newbie

Postby Lambs » Tue Mar 10, 2020 1:16 pm

Why indeed? It now costs HMRC very little to process a tax return or to set up a tax file. So it would rather make everyone file a tax return - such as company directors who do not draw a salary or other remuneration from that company. It has been told several times that company directors, just like ordinary taxpayers, do not need to notify chargeability unless they actually have a liability. It has lost tax tribunal cases on exactly that point. But still HMRC insists that all directors must file a tax return. It lost a case on this in 2017, but so far as I know, has taken no steps to update its guidance since.

And, in a similar vein, if you contact HMRC to say you are self-employed, it will simply issue a notice for you to file a tax return, so you will then have no choice. But, as I said at the outset, if you do not owe any tax ( or would not owe tax on a Self Assessment return if you DID file one ), then you are under no obligation to notify HMRC in the first place.

It just goes to show that even when an authority thinks it holds all the cards, it can still be wrong.

With regards,

Lambs

marcandre
Posts:6
Joined:Mon Mar 09, 2020 5:44 pm

Re: Freelance tax advice - total newbie

Postby marcandre » Tue Mar 10, 2020 4:33 pm

Thanks again, Lambs.
And, in a similar vein, if you contact HMRC to say you are self-employed, it will simply issue a notice for you to file a tax return, so you will then have no choice. But, as I said at the outset, if you do not owe any tax ( or would not owe tax on a Self Assessment return if you DID file one ), then you are under no obligation to notify HMRC in the first place.

It just goes to show that even when an authority thinks it holds all the cards, it can still be wrong.
It's certainly a confusing situation for those who aren't in the know. Everywhere I looked, from official sources to other sites where 3rd parties asked for advice from others, the official position has been "oh no, I earned more than £1,000 selling items on PayPal, what should I do?" "You need to file as self-employed"/"you have to register as self-employed". I saw this in so many places that I'd assumed it was a definite, firm rule.

Presumably, if somebody is already earning a salary above the personal allowance, then the self-employed income might be more relevant; if however, the self-employed income is their only source of income, and it's below the personal allowance, then registering as self-employed would not be necessary. Would that be accurate to say?

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Freelance tax advice - total newbie

Postby robbob » Tue Mar 10, 2020 5:03 pm

Presumably, if somebody is already earning a salary above the personal allowance, then the self-employed income might be more relevant; if however, the self-employed income is their only source of income, and it's below the personal allowance, then registering as self-employed would not be necessary. Would that be accurate to say?
Nope that would not be accurate for all circumstances - potentially if national insurance is due on your profit then as the NI threshold is significantly lower than the personal allowance level registration may be needed to avoid penalties being charged and avoid the underpayment of that NI. I think from memory though if you are below the class 2ni threshold (6365 this tax year) the same principle applies that if there is no ni due then the lack of registration will not be aproblem.
It may be in your inetrests though to register and claim the cheap years stamp towards state pension if you are eligible.

Note even if you don't register it is important that you keep calculations of taxable profits so you can prove to hmrc upon request that your income wasn't such that tax would be due.

marcandre
Posts:6
Joined:Mon Mar 09, 2020 5:44 pm

Re: Freelance tax advice - total newbie

Postby marcandre » Tue Mar 10, 2020 5:09 pm

Note even if you don't register it is important that you keep calculations of taxable profits so you can prove to hmrc upon request that your income wasn't such that tax would be due.
Understood. Thank you both for these informative responses.

M

marcandre
Posts:6
Joined:Mon Mar 09, 2020 5:44 pm

Re: Freelance tax advice - total newbie

Postby marcandre » Tue Mar 10, 2020 5:10 pm

Forgive the poor formatting of that previous reply. My thanks stand!


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