The January deadline comes at a particularly difficult juncture as it coincides with a period that can often be slow for freelancers as businesses emerge from the Christmas break and are yet to commit to their 2024 spending plans. As a result, having to pay tax on work completed many months ago at a time when the current pipeline of work looks low can feel like an extra kick in the teeth.
Of course, having to pay tax is one of the few certainties in life and any experienced freelancer will have set aside at least 20 per cent of their income to cover their tax bill. And while January 31st may be the latest you can file your tax return, bearing in mind that this is on income generated as long ago as 2021 if you are filing as a business and at least nine months ago if you are filing as an individual, there is nothing to stop you getting your affairs in order any time in that nine-month window. But then again, who ever does anything without a bit of deadline pressure to focus the mind?
Making tax digital
With society becoming increasingly cashless, HMRC makes a big play of “Making Tax Digital”. Freelancers therefore have to ensure they are keeping up to speed and still requesting those all-important receipts for business expenses to claim back.
Some banking apps can help with features that enable you to categorise your spending, something that can be useful when having to remember in January 2024 what you had bought back in the summer of 2022. Similarly, there is now a wealth of apps for uploading photos of your receipts to avoid the headache of losing your sole paper copy and also means you can keep on top of your expenses rather than building up as a task you keep putting off before the looming deadline forces you into a heavy slog wading through a full year of receipts.
Late January is not the time to be suddenly trying to find an accountant as they will all be fully under the pump already as they navigate through their busiest month of the year. However, having an accountant help with your tax affairs is a sensible, and sometimes cost-effective, approach to ensure you are not missing out any schemes that could reduce your tax as well as not underpaying and therefore opening yourself up to the risk of backdated claims and further action from HMRC.
Examples of schemes that freelancers may benefit from are the trading allowance and the annual investment allowance while payments into a pension and charitable donations will also help lower your tax thresholds.
As a further protection, you could take out a specialist tax investigation insurance policy that will help cover the costs of expert advisers to defend you should HMRC decide to investigate your tax returns. This could be particularly worth considering in the wake of the clampdown on people being employed through a service company rather than being a full-time, salaried employee, therefore reducing the need for the actual employer to pay national insurance, pension and other tax contributions, known as the IR35 rule.
The shifting work patterns have opened up many pathways for freelancers with companies increasingly comfortable taking on people solely for specific campaigns or tasks and being spared the permanent additions to their headcount. Often the hardest part of being a freelancer is finding the next gig and as the number of self-employed people continues to grow, the competition for work is only going to increase.
Partnering up with fellow freelancers in your sector, particularly those that offer complementary skills to your own, is a smart way of not only attracting more work, as suddenly you can offer clients multiple services without them having to shop around for each one, it can also be cost-effective as you can share the software and license costs needed for your work.
The pandemic prompted a dramatic shift to working from home and opened up the possibilities of people being able to do their jobs anywhere in the world with hubs of “digital nomads” developing in locations ranging from Portugal, Indonesia, Thailand and Colombia.
While this nomadic lifestyle has obvious appeal, the tax implications of this remote working should not be ignored with freelancers advised to keep abreast of how many days they can work in any one place before being liable for tax in that country or indeed whether the flights for these trips qualify for a legitimate business expense.
So come next January, while the need to pay tax will not have disappeared, by putting some smart strategies in place now, at least the unnecessary added stress in the gloomiest month of the year can be avoided.
Rupert Rowling is a freelance journalist and writer and is part of the team behind www.freelancejournalist.com, a community of expert journalists and writers dedicated to providing high-class, engaging and informative content to businesses around the world. Get in touch with him here.