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How Can First-Time Freelancers Save Taxes?

How Can First-Time Freelancers Save Taxes?

How Can First-Time Freelancers Save Taxes?

Being a freelancer is like being self-employed. So, people often get confused about saving and paying taxes every financial year. However, as a freelancer, if you are well-versed with the basics of filing your tax returns, you can end up saving a lot of money. The kind of taxes that a freelancer pays can vary depending on the nature of work that they do. So, here are some tips that can help you save a lot of taxes as a freelancer or a sole proprietor!

What Types of Taxes Are You Required to Pay?

As a first step, you need to pay the income tax as well as Class 2 and Class 4 national insurance. If you pay your tax returns through paper, normally, the deadline would be October 31 at the end of each tax year. In case you file your tax returns online, the last day to file it would be January 31 after the taxation period ends. Normally, you need to pay your taxes annually, but you need to pay your quarterly taxes based on your estimations. You must be ready with your total net loss as well as net profit in order to calculate and file the taxes efficiently.

Following are a few tips that can help you save taxes as a first-time freelancer!

1. Car Expenses

Car expenses can be counted as something that can help you save taxes because you need to use it for your business purposes as a freelancer. This would include expenditure related to car servicing, parking, vehicle insurance, break down cover, vehicle license fee and everything related to your car expenses. However, this would not include driving fines or driving costs that are not directly related to your business. The easier option is to go for calculating the flat mileage rate rather than going for the actual cost of running the vehicle.

2. Advertising Expenses

If you are a self-employed individual in the UK, you can avail a tax deduction for costs related to the promotion and advertising of your services. However, you will need to prove that advertising is related to directly promoting your services. There are several advertising channels that you can use in order to get this deduction. It can be through newspapers, bulk SMS or mail advertising. You may also avail a reduction on brochures, posters, business cards and the cost for operating your website including the hosting fee and overall site maintenance.

3. Telephone and Internet Expenses

As a freelancer, you need to use your phone and internet extensively. Therefore, you can claim a deduction on it. However, you need to prove that your internet and telephone is used for your business purposes only. You cannot claim a deduction on your entire bill if you make personal usage from the phone or the internet as well. Therefore, it is a good idea to figure out how much of the bill was generated a result of your business-related work.

4. Travel and Meal Expenses

If you travel for business, you can claim the air tickets, the bus tickets, the taxi fares, and even the train tickets. You can also include the hotel bills and meal expenditure during your travels. For this, you can claim a 100% deduction because it is related to your business. However, you must be careful and keep track of all the receipts as well as match the date and time of these meals with the trips. Therefore, it is a good idea to maintain an excel sheet to record all the travel and meal-related expenditure during your business trips. Keeping your boarding passes and bus/train tickets are also necessary so that you have enough proof for these expenditures.

5. Financial and Legal Services

As a freelancer, you can avail deductions on taxes if you hire services of financial experts or take any form of legal assistance. If you hire accountants, surveyors, architects or solicitors, you can avail deductions on their fee. However, you need to prove that the work that they offer is related to your professional service. You must note that the legal fee that you pay for buying equipment or property cannot be claimed for deductions. You cannot even claim fines for breaking laws.

Final Words

Target Accounting can help you immensely in understanding possible deductions that you can avail in your taxes. As a freelancer, you can easily show all your expenditure related to your business and get a benefit on your overall profit. If you are starting your career as a freelancer, you might find it challenging to streamline all your expenditures properly. Therefore, some help from experts can help you go a long way in saving your taxes. For a free consultation regarding your finances and taxes, feel free to get in touch with us!