Ask an accountant: freelancers and contractors
The questions freelancers, contractors and consultants actually ask, answered the way they would be answered on a call: the short answer first, then why, then the free tool if there is one. Rates are those applying in 2026/27.
38 questions, answered plainly
By 5 October following the end of the tax year in which you started. If you began in June 2026, that is 5 October 2027. Registering earlier is easier and costs nothing.
The trading allowance covers the first £1,000 of trading income. Below that you do not need to register or pay tax on it. Above it you do, on the whole amount, and you choose between the allowance and your actual expenses.
Not as a sole trader, though it makes everything easier and costs almost nothing. As a limited company, yes: the company's money is legally not yours and mixing them creates problems that take real work to unpick.
Invoices out, receipts in, bank statements and anything supporting a claim, kept for five years after the 31 January following the tax year. Making Tax Digital adds that the summary must be kept digitally, but the underlying evidence is unchanged.
On current rates, probably not for tax alone. Drawing everything out, a sole trader keeps more at almost every level of profit. Go limited for limited liability, for retained profit, or because a client will not engage a sole trader.
It is out of date. That advice was built on dividend rates of 8.75 and 33.75 per cent. They are now 10.75 per cent and 35.75 per cent, and the arithmetic changed with them. Run your own numbers rather than the rule of thumb.
Drawing everything, there is a window around £60,300 of profit where it wins by roughly £15 a year, and that is the whole of it. Above and below, the sole trader keeps more, by about £4,100 at £100,000. If you can leave profit in the company the picture is different.
Annual accounts, a corporation tax return, a confirmation statement, payroll if you take a salary, and usually a higher accountancy fee. Set against a £15 tax saving, the cost decides the question on its own.
It depends on the client. If the client is small and private, your own company decides and carries the risk. If the client is medium, large or public sector, the client decides and must give you a Status Determination Statement.
Meeting two of three: turnover not more than £15 million, balance sheet not more than £7.5 million, and not more than 50 employees. The thresholds rose on 6 April 2025, so clients that used to issue determinations may no longer do so.
Control over how and when the work is done, whether you could send a substitute, and whether there is an obligation to offer and accept work. Financial risk, equipment and whether you look part of the team then fill in the picture.
No. If the paperwork says one thing and the working practice says another, the practice wins. A well drafted contract that nobody follows is worse than useless, because it looks like an attempt to dress up the arrangement.
Because on an assignment rate, employer National Insurance comes out of the rate before anything is treated as your pay. On a £83,500 assignment that is £10,239 gone before your own income tax and National Insurance start.
Yes. Write to the client saying you disagree and why. They have 45 days to respond with reasons or issue a new determination, and if they do not respond in time the liability passes to them.
As a share of what you invoice rather than of profit, which is the figure people mix up. On £64,000 invoiced with £9,000 of costs the liability is £11,789, which is 21.4 per cent of the profit but only 18.4 per cent of the invoices.
Payments on account. The first January carries the whole of the previous year plus half again on account of the current one: 150 per cent of a year's tax in one payment. After that it settles to half in January and half in July.
Yes, if you expect the coming year to be worse. Reduce them below what turns out to be due and interest is charged on the difference, so base it on evidence rather than hope.
Not if your liability is under £1,000, and not if at least 80 per cent of your tax was already taken at source. Otherwise yes, automatically.
Class 4 on your profit, starting at the same £12,570 as income tax and dropping to a lower rate above £50,270. Class 2 no longer has to be paid to build a qualifying year.
It depends on your gross income, not your profit. Over £50,000 and it applies from 6 April 2026. Over £30,000 from 2027, over £20,000 from 2028.
Possibly, yes. The test reads gross income before any expenses. A freelancer invoicing £64,000 is in scope from April 2026 whether the profit is £55,000 or £12,000.
No. The payment dates are unchanged: 31 January and 31 July. The quarterly updates are information, and no tax falls due with them.
7 August, 7 November, 7 February and 7 May. You can report to the 5th of the month or to the month end, and the deadlines are the same either way.
Only if it is connected to compatible bridging software. A spreadsheet on its own does not meet the requirement, because the figures have to reach HMRC through a digital link rather than by being retyped.
Once taxable turnover passes £90,000 in any rolling twelve months, or if you expect to pass it in the next thirty days alone. The rolling test is the one that catches people, because it is not measured over a tax year.
Usually not. If your spending on goods is under 2 per cent of turnover or under £1,000 a year you are a limited cost trader and the rate is forced to 16.5 per cent, which takes back most of what the scheme offers.
It can be worth it if your clients are VAT registered businesses, because they reclaim what you charge and you start reclaiming your own input VAT. If you sell to consumers, registering early raises your prices by a fifth.
Either a flat rate of £10, £18 or £26 a month depending on hours, with no records needed, or a proportion of your actual costs by rooms and by time. Keep some private use of the room either way.
Yes, through capital allowances rather than as an ordinary expense, and the Annual Investment Allowance means you claim the whole cost in the year you buy it. Buying before your year end gets the relief a year earlier.
Training that keeps your existing skills current is allowable. Training that equips you to do something new is capital in nature and is not, which is the distinction that catches people changing direction.
No. Entertaining is never allowable, however genuinely business the meeting was. It comes out of profit that has already been taxed.
The proceeds come back into your profit as a balancing charge, capped at what you claimed. Subscriptions and other running costs never create one, because there was no capital claim to unwind.
From what you need out of the year divided by the days you can actually bill. That is about 167, not 260. Divide by the wrong number and every figure after it is a third too low.
£64,000 over 167 billable days is £383 a day. Over 260 it is £246. Charge the £246, bill the 167 days you really have, and you finish the year £22,892 short with nothing else having gone wrong.
That they are comparing the wrong numbers. A £55,000 salary costs an employer £64,150 once employer National Insurance and the minimum pension are in, which over 167 billable days is £384 a day before an office or a laptop.
A day rate sells time and the client carries any overrun. A fixed price sells an outcome and you do. Fixed price is where experienced freelancers earn more, provided the scope is defined and the revisions are limited in writing.
You are entitled to statutory interest at base plus 8 per cent on a commercial debt, plus a fixed sum of £40, £70 or £100 by size of invoice. Most freelancers never claim it, and mentioning once that you can changes how some clients schedule payment.
Divide the fee by every hour the client takes, including calls, revisions and chasing. The biggest client by fee is very often not the best one by the hour, and only the measurement shows it.
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