The Practical Guide to Limited Company Tax
If you have chosen to operate your business as a limited com...
By Jonathan London on 16th April 2014
Most freelancers choose self-employment because they love the freedom and flexibility it offers. But they come at a price if you fall prey to the classic freelancing traps. Here are five freelance mistakes to avoid.
Working alone offers excellent opportunities to procrastinate. Putting awkward tasks off until tomorrow can be tempting – especially if the sun is shining and your dog/mountain bike/surfboard is screaming, ‘let’s play!’ at you in the full knowledge that you will crack.
Trouble is, when tomorrow comes, something unforeseen and highly urgent will probably need doing by lunchtime, pushing all your scheduled tasks back and piling on the pressure to complete two days’ work in one.
As a freelancer one of the greatest advantages you have is the freedom to work with whoever you wish. This means you can protect yourself against the loss of one source of income by developing productive relationships with several clients simultaneously. That said, beware of conflicts of interest and stick to the terms of any non-disclosure agreements you sign.
When your workload is full and the money is flowing in, it’s easy to forget about what happens when the contract finishes. Failure to keep your marketing efforts going is a sure way to turn a purple patch into a barren spell. Keep promoting yourself – even when you’re working flat out on a lucrative project.
Many’s the freelancer who has gone on a wanton spending spree in the belief that he can ‘put it through the business.’ It doesn’t work like that. For expenses to be tax deductible, they have to pass the HMRC ‘Wholly and Exclusively’ test. In short, they must have been incurred in full for business purposes only – and even then there are limits and restrictions as to what and how much you can claim. Mug up before you splash out.
If you’re new to freelancing, remember that tax and national insurance won’t have been deducted from the payments you receive. Assuming your earnings will exceed your tax-free threshold, you will have to make payments to HMRC in January and July each year. Put around 20 – 25% of your income in a high interest savings account to avoid any nasty shocks (you never know, the interest might stand you a curry!).
Our handy guide to claiming expenses through your limited company looks at what you can and can’t claim tax relief on through your company
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