Author Topic: Tax on freelance and rental income - how to budget?  (Read 806 times)

LFH86

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Tax on freelance and rental income - how to budget?
« on: April 07, 2018, 03:38:37 PM »
Hi,

My husband and I will be having a big shift in circumstances in a few weeks. We are moving 200 miles from London to Manchester, Iím starting a new job and he will be setting himself up as a freelance writer. We are renting in Manchester and renting out our flat in London.

How do we go about budgeting for income tax on his freelance income and our rental income? I know we will have to do a self assessment tax return, but I would prefer to be putting money aside all year from our incomes rather than getting a tax bill and having to scrabble the money together to pay it. Whatís the best way of doing this? Just putting 20% of all income aside? Or is there a more sophisticated way of doing it??

My father in lawís partner is an accountant so likely we will ask her for help when we come to actually completing the tax return, but I donít really want to be bothering her all the time with questions!

And if I have completely misunderstood how it works, please go ahead and tell me! This is all very new to me, have only ever paid tax through PAYE before.

shelivesthedream

  • Magnum Stache
  • ******
  • Posts: 3515
  • Location: London, UK
Re: Tax on freelance and rental income - how to budget?
« Reply #1 on: April 08, 2018, 01:28:56 AM »
Hello! Self-employed sole trader here who does all her own taxes. Mine are pretty simple and your husband's should be too. I can't speak for rental income.

When you come to fill in the form, in essence it is as simple as adding up all your income, adding up all your expenses, and then the form does the calculations and tells you how much to pay.

For income records, I keep all my invoices in one folder on my computer along with a spreadsheet with a running total. End of the year, I print them out and stick them in a ringbinder.

For expenses, I keep an envelope in my desk. Physical receipts go in there with a brief note about what it was (because you WILL forget!). I only have about half a dozen a year. I have a label in my gmail inbox for email receipts. Again, I don't have many. You can only claim back unreimbursed expenses and most of mine are reimbursed. I also don't bother with calculating percentages of my internet bill and the like because I rarely pay much if any tax anyway.

The rule of thumb I was given was to put aside 25% of income because it's basic rate tax plus national insurance. However, the personal allowance means that 20% will probably be sufficient if he's not earning a lot of money. I'd do 25% the first year and see how it goes, though - worst case scenario you end up with a bit left over to go into investments!

DO YOUR TAXES EARLY. You get until 31st January if you do them online but DO NOT LEAVE IT THIS LATE. You might forget, your computer might break, and HMRC will be clogged up by everyone else panic-doing their taxes. I do mine around the summer solstice - long enough for any last bits of money to come through but early enough for serious peace of mind. He should register as self-employed ASAP, though, because he will need to set up an online account which involves being sent stuff through the post.

HMRC are super duper nice if you ring them up with questions. Just explain its your first time doing your taxes and they will help. But it's really not difficult - a lot of the form is ticking "No, this incredibly specific situation does not apply to me". And as a writer he's unlikely to have complicated expense scenarios.

LFH86

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: Tax on freelance and rental income - how to budget?
« Reply #2 on: April 29, 2018, 02:52:47 PM »
Thank you! This is essentially what I thought (and if I were self employed, itís what I would do) but good to hear that it doesnít need to be any more complicated!

skip207

  • Stubble
  • **
  • Posts: 240
  • Location: UK
Re: Tax on freelance and rental income - how to budget?
« Reply #3 on: April 29, 2018, 03:59:54 PM »
You may wish to consider setting up a LTD company. 
As a start up there are so many advantages.

Then from a tax POV you can take advantage of the divi allowence (tax free upto £2k and 7.5% up to higher rate) and also pension provisions. That said as a start up you might not make much profit the first year... or two...

 NIC allowance of £3k is on offer for starters too, assuming you qualify.

Yes there is a bit more paperwork and as a result a bit more cost but unless you have a very low turn over its probably worth it.

It would be worth sitting down with an accountaint for a couple of hours and running over everything, start up costs, what investment you might make to get it off the ground, your current income, your position in this may also be of interst - would you consider doing a small role in the business?  You could also be a share holder.

Its a massive topic but the key thing is to set off on the right foot.  I made that mistake, which is why I am telling you about it before you possibly start out that way.  I realised the error after a few months but that tax bill was a painful one I can tell you.  That was 15 years ago and I have been LTD since.

Also consider your situation ref insurance and also possibly VAT.

HTH

LFH86

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: Tax on freelance and rental income - how to budget?
« Reply #4 on: April 30, 2018, 12:25:00 PM »
Hubby is setting up a ltd company... I'm trying to leave it to him to figure out since it's his thing and I'm working on being lessvifca control freak! His stepmother is an accountant so will encourage him to sit down and talk through with her. Thanks for the advice, appreciate it!

As it happens, it's possibly not as pressing as it may have been. His current company is desperate for freelancers due to lots of writers leaving at the same time, so they've offered him a sort of zero-hours contract to be paid through payroll until he gets another client and can be properly freelance. It'll help pay the bills for the time being at least!

Playing with Fire UK

  • Handlebar Stache
  • *****
  • Posts: 2269
Re: Tax on freelance and rental income - how to budget?
« Reply #5 on: May 06, 2018, 02:13:53 AM »
When you speak to the accountant, see if there is a way that you can allocate the rental income to whoever has the lowest tax rate. A Ltd co might help out with this.

LFH86

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: Tax on freelance and rental income - how to budget?
« Reply #6 on: May 08, 2018, 03:05:08 PM »
Cheers, top tip!