Being self-employed basically means that you work for yourself instead of for a company – so you’ll be responsible for paying your own income tax to Her Majesty’s Revenue and Customs (HMRC).
HMRC has put together a video to make you decide whether you are trading and therefore need to register as self employed.
If you were working full- or part-time for a company, your income tax would be deducted from your pay by them and paid to HMRC on your behalf. When you become self-employed, every year HMRC will send you a reminder to send them a completed Self Assessment form – which is what they call a tax return.
You can submit your return yourself online or by post, or you can hire an accountant to fill in the form for you. The advantage of having an accountant is that, if there are any mistakes in your tax return, the accountant is obliged to sort it our with HMRC and not you, but if your tax affairs are quite simple you may prefer to save the money you would have to pay an accountant and do it yourself. Often, artists get their first one or two tax returns done by an accountant and then use these as a template to fill in their own tax return themselves.
Your Self Assessment form has to include declaring earnings from any work you do which has had tax taken off your income, such as a full- or part-time job. At the end of each tax year you will be sent a form called a P60 by any employer you have worked for that year who has paid tax on your behalf, and can simply fill in part of your tax return with this information. If you have already paid tax on some of your earnings, you will be liable to pay a different amount of tax on your self-employed income.
The main advantage of being self-employed is that you can reduce the amount of tax you pay. You only pay tax on your profits – the amount of money you earn minus any expenditure related to your business, such as materials costs, studio rent, phone bills, internet access, postage, stationery, travel and purchase of necessary computer equipment or anything else you need for your ‘business’. The more deductions you have to offset against your profits, the smaller your profits will be, and the smaller your tax bill.