When you’re working as a freelance programmer, there are many benefits to being your own boss and having the flexibility and freedom to pick and choose the work you take on.
However, with that freedom comes the responsibility of making sure that you’re paying the right amount of tax, correctly filing the necessary paperwork, and making the most of the things you can claim for as a freelancer.
To help you reduce some of the worries that can come with being a freelance programmer here’s some helpful tax guidance for self-employed programmers.
| Also read: Easy Passive Income Ideas For Programmers |
Programmers Working Soley as a Freelancer
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Any programmers who work solely in freelancing and earn over £1000 per tax year in the UK need to do a Self Assessment and report their earnings to HMRC. For programmers who are both freelancers and employed by a company that gives them PAYE income, HMRC needs to be made aware of both your earnings.
HMRC determines your tax rate based on your total combined earnings over the course of the tax year, so it’s vital that you register your Self Assessment and declare your earnings as accurately as possible. Failure to do so can result in severe penalties and fines.
Registering for Freelance Tax as a Programmer
If this is your first year sending a tax return you’ll be required to register for Self Assessment and Class 2 National Insurance. First-time registers can be done through your business tax accounts. To do this, you’ll need to create a Government Gateway account, which will provide you with a user ID and password to help manage your tax affairs.
If you’ve already registered but didn’t send a tax return in the previous tax year, you’ll receive an email or letter to remind you to complete your tax return before the due date. You can register online via form CQF1 for Self Assessment and Class 2 National Insurance. You’ll have to have your Unique Taxpayer Reference code (this will be 10 digits long) from when you first registered.
While registering for tax and maintaining your tax records may sound complicated, there are initiatives in place to help streamline your financial matters, such as the Government’s Making Tax Digital initiative, which has been created to help simplify taxation matters and avoid confusion for UK freelancer programmer.
Tax for Freelance Programmers
The amount of income tax freelancers pay in the UK can vary depending on the amount they make within a tax year and the allowable expenses they can claim back. But generally speaking, you’ll be able to calculate this easily by subtracting your expenses from your annual income.
Below is a breakdown of the 2022/2023 income tax rate percentages that freelancers may incur depending on their taxable income:
- Personal allowance: Up to £12,570 with a 0% income tax rate
- Basic rate: Between £12,571 and £50,270 with a 20% income tax rate
- Higher rate: Between £50,271 and £150,000 with a 40% income tax rate
- Additional rate: £150,001+ with an income tax rate of 45%
What Expenses Can you Claim as a Freelance Programmer?
All freelancer programmer have expenses. In the case of working as a freelance programmer, those expenses can potentially range from the software and equipment you use to the insurance fees associated with protecting them. Costs that come from renting work offices or even home office spaces can also potentially be claimed back.
Below are some of the more commonly claimed business expenses for freelancers who work in programming. Consider whether you’re able to claim for these before completing your Self Assessment.
- Computer equipment such as laptops and keyboards
- The computer software that relates to your job role
- Website costs like hosting and domain fees
- Work stationery and phone bills
- Desks, chairs, and other home office furniture
- Any kind of copying and printing costs
- The costs of magazines, books, and other reference materials
- Studio or working space rental fees
- Travel costs like train fares, petrol, and parking
- Industry-related training courses
If you work out of your home office, you can still claim some bills back as allowable expenses. However, it’s vital that you fully understand how to go about this and what you’re eligible to claim for.
First of all, you’re within your rights to claim some of your home expenses in the following areas:
- Council Tax
- Heating
- Electricity
- Mortgage Interest
- Internet Usage
- Rent
But you’ll need to find a fair way of dividing up those costs within a reasonable amount in relation to the time spent working from home. Let’s say that you’re a freelance programmer living in a two-bedroom home, and you’re using one of those rooms as an office space. Let’s also say that your annual electricity bill reaches £600.
If both rooms use roughly the same amount of electricity, you can claim back £300 in allowable expenses (£600 divided by two). You can then divide that £300 by the number of days per week you work from home. So, if you work two days per week in your home office, you can claim back £150 (£300 divided by two).
Paying VAT as a Freelance Programmer
All freelancer programmer and self-employed people in the UK are required to pay VAT once their annual income passes the VAT taxable income threshold. For the tax year of 2022-2023, the threshold currently sits at £85,000 and above.
Any self-employed/freelance programmers earning above this amount will need to register for VAT and submit their VAT returns to HMRC through an online account portal, commonly referred to as a Government Gateway account.
Tax Penalties for Freelance Programmers in the UK
Missing Self Assessment deadlines or failing to submit a tax return can result in penalties, fees, and in some cases, even legal action being taken. At the very least, you’ll incur a late penalty fee of £100 for filing a late tax return up to three months late. There are also additional penalties if your tax return still isn’t filed after those three months, including interest being charged on late payments.
Tax evasion can potentially lead to heftier fines than this and even a prison sentence. While it ultimately depends on your specific circumstances, serious tax evasion charges can land you with a conviction of six months in prison or a fine of around £5,000. The maximum penalty for income tax evasion can be a sentence of seven years in prison and an unlimited fine.
To avoid these issues, you can contact HMRC to discuss a payment plan for the amounts owed. Be sure to do this way before the amount is due.
Final Thoughts
It’s not always easy to juggle a full-time freelance schedule with tax deadlines or the rules and regulations that come with them. However, being a self-sufficient freelance programmer in the freelance world can be made easier by making use of the innovations available to you in order to keep your affairs in order.
If you can make note of key tax dates and deadlines during the tax year, and your information is as up-to-date as possible, you’ll soon be able to adhere to your Self Assessment deadlines while making the most of your workload too. Then it’s just a matter of focusing on your workload, instead of worrying over whether you’ve filled out your Self Assessment correctly.
