Longer online version; see re-sub-edited PDF

Tax planning!

TAX YEAR 2021-22 has just ended, on 5 April. Tax year 2022-2023 has now begun. You now have until 31 January 2023 to send in your tax return online for 2021-22 - 31 October 2022 if you have asked to do your tax return on paper. We understand that if your date of birth is somewhere in the early 1940s or earlier, HRMC - the tax people - will print and send you paper tax returns anyway. And you need to check that you can log in to file your return online - see below.

The deadline for filling in your tax return may seem like a long way off. For some of us, however, there may be advantages to filling in your tax return earlier.

What with the pandemic and its aftermath, some of us may have taken a hit to our earnings in 2021-22. Some of us may have taken such a hit to our earnings that we may have to pay little tax - or possibly even none - for that year.

If you think you might be in that position, consider doing your tax return sooner rather than later, and file it to HMRC online. If you are due a tax rebate, you'll get it sooner. Or if the amount of tax you're liable for is less than you had feared, you'll find out sooner. That means you can start spending whatever's left from the amount you set aside for tax and that you end up not having to render unto Her Majesty's Revenue and Customs after all.

If you are new to freelancing...

Members who became self-employed in tax year 2021-2022 and who haven't told HMRC should contact it now for advice on setting up a Government Gateway account, registering with HMRC as self-employed, getting a Unique Tax Reference number and all the rest of it.

Collecting society money

We've heard that at least a couple of freelances made a lot more from the "March distribution" from the Authors Licensing and Collection Society (ALCS) this year than expected. See here for what ALCS is, and how authors can benefit from it. Photographers and illustrators should see here for details of their equivalent, the Design and Artists Copyright Society (DACS).

We know of two freelances whose eyebrows were raised when sums in four figures landed in their accounts. We've also heard recently of a new record-breaking amount paid to an LFB member in an ACLS payout - around £8000. This wasn't from the 2022 March distribution, though - it was paid to them in March 2021.

If you've had a bad year for earnings and you suddenly get a much bigger than expected ALCS payout - falling near the end of the tax year - don't let the blood rush to your head. It's possible that the big amount you've just earned via ALCS is enough to push you over the threshold where you start having to pay tax, or push you into a different tax code. That's another reason to do your 2021-22 taxes soon. To do so will give you peace of mind; you'll quickly be able to ascertain how much of your ALCS windfall you can actually keep.

SEISS and savings

You did set aside some money for tax, right? Uh-oh?

Remember that the money you earn isn't really yours until you've settled up with HMRC for tax payable from earnings for that year. A seasoned freelance advises that you put aside a quarter of everything you earn, as soon as it's in your account, in anticipation of tax. That way, you can be pleasantly surprised when you pay your taxes and find there's a little (or possibly a lot) of that amount still left over.

Many of us claimed, and received in tax year 2021-2022, money via the now-closed Self-Employment Income Support Scheme (SEISS) that compensated for losses to our income due to the pandemic. Remember that you have to pay tax on any SEISS payments you got - the more so if your income subsequently started to recover and your total income went well over your "allowance".

Any savings you have are likely to affect your eligibility for benefits: so make sure any money in your savings account that you have earmarked as set aside for paying taxes is identifiable as savings "for business purposes". See here for how this works.

The start of the new tax year also brings with it the annual tax scams. A member has reported receiving phone and text messages from someone claiming to be the HMRC, telling them they're immediately liable for tax payable and have to make a payment now to avoid prosecution. They didn't fall for it. But these scams could fool the newly self-employed in particular. HMRC will, as far as we are aware, never contact you by phone. The only thing they'll send to you by text are non-specific, automatically-generated reminders - and that only if you sign up to these.

Making tax digital

It seems that the current government is going ahead with its plan to force absolutely all self-employed folk to sign up to the truly awful Making Tax Digital plan by April 2024. This would require us to submit accounts four times a year instead of annually. At the moment, only those with an annual turnover which reaches the threshold of having to pay Value Added Tax (VAT) - £85,000 a year - have to endure this obligation. See the Freelance Fees Guide advice on VAT.

We understand that Making Tax Digital will probably require us freelances to submit these more frequent returns through commercially-available apps or websites. The Freelance has had a look at some of these and found them clunky on certain devices, lacking in explanation, far from intuitive to use and with inadequate support. It seems you can't talk audibly to a human being about any issues, only "live chat" online - very slowly. We will endeavour to keep you updated on Making Tax Digital developments.

Logging in to file your tax return

Before you can file your tax return online you have to log in. You should make sure very soon that you can still do this.

Until 31 March 2022 you could use the moderately convenient GOV.UK Verify service. This was due to be phased out in 2023. On 1 April 2022 HMRC rather suddenly stopped accepting GOV.UK Verify. You can now log in only with HMRC's Government Gateway ID number and password.

Registering your Government Gateway account can take some time. So can recovering your password if you had one long ago and have forgotten it - and especially long if you have forgotten your "recovery word". Things will have to be sent to you in the post. So do it now.