Whether you are already self employed or considering becoming a self employed content writer, here is some tax advice to help you understand:
- How to register for self employment;
- What taxes you need to pay as a Self Employed Content Writer and how much;
- Fully understand your HMRC self employment responsibilities.
What is Self Employment?
When you work as a Self Employed Content Writer t all the money you that you earn is untaxed. It is unlike when you work for someone else and they pay you after deducting all your tax on your behalf, and give you a payslip.
When you are self employed you are responsible for letting HMRC know how much you have earned and how much tax you need to pay (much like an employer would do if you worked in a job).
You report your earnings on a Tax Return and it is really important to remember that you must complete this return regardless of how much you earn, even if you earn below the threshold for paying any tax.
Going self employed is by far the simplest and quickest way to get started when you want to become a self employed content writer.
The Four Essentials of Self Employment:
- Visit the HMRC website and register as Self Employed;
- List out and keep all the receipts from your writing income and expenses;
- Complete a Self Assessment Tax Return before 31 January each year summarising your business income and expenses;
- Pay any Tax and National Insurance due by 31 January each year (and payments on account by 31 January and 31 July each year).
Registering as Self Employed Online with HMRC
The process of registering as Self Employed on the HMRC website can take 10 days to complete. Upon which HMRC will post you a UTR number (Unique Taxpayers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return.
Your Responsibilities being Self Employed
Self Employed Individuals are responsible for reporting their income to HMRC under Self Assessment by submitting a personal Tax Return by 31 January each year detailing all of your income as a self employed content writer along with any other earnings (from a salaried job for example), income tax and national Insurance due, as well as paying any tax you owe.
Your tax return submitted by 31 January covers the previous tax year (a tax year runs from 6 April to 5 April). So for example, your tax return due by 31 January 2018 details your earnings between 6 April 2016 to 5 April 2017 from being aself employed content writer as well as any other income you have (such as employment income, rental income, bank interest or dividends).
Payments On Account
Watch out, you are also required to make a payment on account to HMRC by 31 July each year too which is normally 50% of your previous years income tax bill and class 4 national insurance bill, so make sure you budget for this additional payment too.
How to Work Out Your Earnings as a Self Employed Content Writer
When you are self employed the tax you pay is based on the income you make as a self employed content writer. Confusingly, income actually means profit – all the money you make less all the costs you have incurred.
Self Employed Content Writer Income
You income will be everything you make selling products and any extra commissions you earn in the tax year from yourself employed content writer. You can find this by adding up all your orders each month.
When you are self employed it is really important to understand which are allowable as they reduce the amount of tax you have to pay.
Generally speaking most things you pay for as part being a content writer will be allowable, here are some examples:
Computer & Printer
You will need a computer & printer not just for yours writing but also to manage your bookings and your social media or for marketing purposes. Your computer and printer may be tax allowable either in full or a proportion of its value, so make a note and keep the receipt to discuss at tax time.
Having a website is so important and it gives you the chance to detail your services, prices, showcase your work and let people get a feel for your experience and personality. If you are considering investing in a website then it is worth noting that the website, domain and hosting again are all allowable expenses.
Licences, Software & Subscriptions
Any costs for hosting, images or any softwares that you use for your work are all tax allowable. They most likely will e mail you a copy of your receipt so it is good to get into a habit of saving this somewhere handy, like in a dropbox or google drive folder, so they are ready for your accountant at tax time. Don’t forget to claim all your costs to reduce your tax liability.
Phone and Internet
The cost of a business phone (mobile and/or landline) and your internet is an allowable expense however if there is personal use then only a portion of the contract costs can be claimed.
If you travel to your clients for you will incur a cost. Keep hold of your receipts for trains, tubes or taxis as they should all be allowable expenses and help reduce your tax bill.
If you need to use your car to travel to clients you should note down the mileage as this falls under the category of travel. Record your miles to and from your destination since you can claim 45p for the first 10,000 miles of driving and 25p thereafter.
Note – If you choose to rent a desk or office space you may not be able to claim for the cost of travel/mileage as this may represent your permanent place of work. Make sure you take professional advice before claiming for travel/mileage as incorrect claims can result in penalties.
Use of Home
If you choose to teach students from your home then there are rules that will allow you to claim an amount for the running costs of doing so from your home as a portion of your household bills such as gas, water, electricity or rent. Make sure you have an idea of your household running costs to discuss with your accountant at tax return time as they will help you work out how much you can claim against your taxable income.
If you opt to rent a desk or an office, then again the cost of doing so is an allowable expense and will reduce your taxable income.
You may opt to take courses to improve your skills. These may be tax allowable so keep your receipts ready for when you need to submit your tax return. If you need to travel to your course or stay overnight as part of the training these costs are also tax deductible, as well as the cost of a basic meal for lunch/dinner. Take the time to collate your receipts or note down mileage so you can discuss your claim against your taxable income with your accountant.
Wages and Freelancers
If you need some assistance and support from others then the cost of these individuals will be tax allowable since they are an incidental cost of your project(s).
Any marketing you do (online or offline), paid ads or anyone you pay to help you with your marketing is also fully allowable so make sure you download or ask your marketing assistant to send you an invoice before you pay them.
Accounting & Bookkeeping
Keeping accurate business records will help to avoid missing any entitlements or tax relief that you may be eligible for. Using a cloud based accounting software such as Xero, Quickbooks or Sage will make life easier, so if you do choose to sign up the cost of the monthly subscription is fully tax allowable. Then, if you choose to use an accountant to complete your self assessment tax return again their fees will be an allowable expense. Keeping accurate records will definitely help keep their fees down too as well as giving them all the information they need to make sure you receive all the deductions and reliefs to reduce your tax liability.
It is advisable to open a business bank account and keep your business and personal expenditure separate. The bank charges you pay on your business bank account is an allowable expense.
Top Tax Tip:
Even if you are currently not making any money as an content writer, you must still register with HMRC and complete a tax return. This may feel onerous, but completing a tax return means you can record all your expenses to create a tax loss. This can then be used against any money you make in future tax years and save you tax at this point.
How Much Tax Will You Pay
As you now know the amount of tax you pay is based on the profit you make from being a self employed content writer (all your income less all your allowable expenses).
However the amount of tax that you actually pay is based on your own circumstances and how much you earn in total during a tax year.
Income tax is calculated at different rates according to how much your profits are. So for 2017/2018 the rates are:
|Personal Allowance||0%||Up to £11,500||Up to £11,000|
|Basic rate||20%||£11,501 to £45,000||£11,001 to £43,000|
|Higher rate||40%||£45,001 to £150,000||£43,001 to £150,000|
|Additional rate||45%||over £150,000||over £150,000|
Example of Working Out Tax for a Self Employed Content Writer
Molly is a self employed content writer but also has a part time job earning £15,000 per year, so has paid tax of £800 through payroll. She is getting ready to submit her tax return for the tax year 2016/2017 which is due by 31 January 2018. She has worked out that her profit from her content writing was £22,000 therefore she will need to pay tax of £4,400.
What Other Tax Must a Self Employed Content Writer Pay?
Self employed content writers may need to pay Class 2 and Class 4 National Insurance as well as tax. The amount of Class 4 National Insurance you pay is based on your content writing profits. The current rates are:
|Class||Rates for tax year 2017/2018||Rates for tax year 2016/2017|
|Class 2||£2.85 a week on taxable profits above £6,025||£2.80 a week on taxable profits above £5,965|
|Class 4||9% on profits between £8,164 and £45,000 2% on profits over £45,000||9% on profits between £8,060 and £43,000 2% on profits over £43,000|
In our example above, Molly earned £22,000 therefore would need to pay Class 1 National Insurance of £145.60 and Class 2 National Insurance of £1,254.60.
Molly’s total tax bill is therefore:
- Income tax £4,400.00
- Class 1 National Insurance £145.60
- Class 2 National Insurance £1,254.60
- Total for 2016/2017 £5,800.20
- Payment on Account £2,827.30
- Total to pay by 31 January 2018 £8,627.50
Complete Your Tax Return
In our example Molly would need to complete the self employment section AND employment section of her Self Assessment Tax Return. She would need to disclose what she earned in her job which will be on her P60 provided to her by her employer.
When you are self employed it is important to budget for your tax and national insurance bill, one of the simplest ways is to set some money aside for HMRC as you get paid. If you are unsure how much tax you need to pay or of your tax status we definitely recommend you ask an accountant.