Hello, I wanted to check how my tax would be calculated in the below situation:
1) I have a full time job where I pay tax via my monthly salary, I pay tax at 40%.
2) I am considering doing freelance work where I would be paid directly by the hour usually by credit card. The amounts would be less than £300 per month.
3) I would need to pay out for room rental and training.
How would I calculate my tax?
Is the room rental and training deductible from my freelance work income?
Would I need an accountant to do this or could I or could I do this myself?
If I needed an accountant what would the approximate cost be for this sort of work and what would I need to provide the accountant with?
Thanks for your help.
Hello, I'm Keith and happy to help you with your question.
From the tenor of your question I assume that your full time job is remunerated under PAYE arrangements. For your freelance work you would be self employed.
You should inform your tax office that you intend to undertake self employment in addition to your full time job. They will then ensure that you are sent a self assessment tax return to fill in at the end of each tax year, but you may well indeed already be completing these. You are probably over the Higher Income Limit for National Insurance so that will not impose an additional problem. On completion of your tax return HMRC will send you a statement of additional tax due which must be paid be the following 31 January.
Room rental is definitely deductible, but not, of course, for a room in your own residence as this would just transfer the rental into your own tax account. Training is a debateable point as it is only allowable to enhance existing skills, not acquire new ones. Other than that all expenses in respect of your freelance work like stationery etc would also be deductible.
So there you are, that is the general position. Plese come back to me if there is anything you do not understand. Always remember to maintain full records of income and expenditure in the event of some future enquiry.
Thank you very much for your answer. You are correct in all your assumptions. I just wanted to confirm the following:
My understanding of how one would calculate tax for self employment (at 40% due to full time job under PAYE) would be as following:
(Income - deductibles e.g. room outside home) - 40%
is that correct?
The training could be considered to be both to enhance existing skills and acquire new ones. I am a fully trained and insured Hypnotherapist but I am doing an MSc in Psychotherapy to enhance my ability to do therapy. So this is both an enhancement to my therapy skills but also a new "skill" as its Psychotherapy and not Hypnotherapy. How would I be able to know if this training would be deductible or not?
You are correct, that is assuming that your new work does not push you into the 45% tax bracket. Remember too, that once your net income exceeds 100K you loose your personal allowance at the rate of a quid for every two earned over the 100K.
Whether you trianing would be classified as new or an enhancement to existing skills is a moot point. I would be inclined to claim for it and should it be disallowed you could argue the point, but I can understand that HMRC might rule the Psychotherapy is a new, not an enhanced skill. It's rather akin to the number on angels who can dance on the point of a needle which so worried philosophers in the Middle Ages.
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Great, thanks very much. One last question, if I were to ask for an accountant (like yourself) to help complete my first self assessment tax return, how much should I be expecting to pay and would this be also a deductible expense?
Here is a comment from Accounting Web, very pertinent:
'New to practice and obviously do not want to overcharge my clients
I was thinking of charging a client £200 for his tax return which includes just some PAYE and one property (client keep proper records). I have also seen some practices charging £65 for a tax return
It will probably will take me max 1 hour. Even £100 seems reasonable on that basis.'
I could not possibly comment!
Nimble Jack Accounting is not so helpful; here is their advice:
The good news is that your accountancy fee is fully tax deductible – unless it is for company set up or relates to your personal tax return.'
It is not allowable as a deduction.
Sorry to have to rain on your parade.