These are the core things you need to understand about the UK tax system.
Your tax return is the official document that you (or your accountant) prepare at the end of your financial year where you report details of your taxable income, any capital gains and claim tax allowances and tax reliefs together with your national insurance contributions. Your taxable income is your income after you’ve deducted allowable expenses. You pay National Insurance contributions to qualify for certain benefits including the State Pension.
Your tax return is done once per year every year and many freelancers adopt the same year end as the UK financial year. Therefore, choosing to start each year on 6 April until 5 April in the following calendar year. You are responsible for registering yourself with HMRC. You do this on the Government Gateway, the secure online platform where you file your tax return.
An accountant is a professional who acts on your behalf and is qualified to advise you on financial matters, prepare accurate financial accounts and ensure your taxes are paid properly and on time. It’s not essential to hire an accountant to assist you with filing your annual accounts or tax return, but they can often save you more money than they cost as they know the rules regarding legitimate business expenses.
The amount of income tax you will pay will depend on how much you earn each year. If you are a sole trader this will be calculated on your gross profits which is your total turnover for the year less any allowable expenses. It is therefore a good idea to keep records of your business expenses over the year. HMRC has a ready reckoner which can help you budget for your tax bill.
Your personal allowance is the amount of money you can earn as income in any financial year without having to pay income tax on it.
You pay National Insurance contributions to ensure you qualify for certain benefits and the state pension. It is mandatory if you are over 16 and earning above certain thresholds. If you are PAYE it will be deducted by your employer, if you are a sole trader it will be worked out as part of your tax return and the payments are all made together.
Value added tax
If you earn over the VAT threshold in a tax year, you’re legally obligated to register for VAT. You can opt to register for VAT if your earnings are below the threshold. VAT is a surcharge on goods and services that goes straight to the government. Once registered, you’ll need to charge VAT to your customers and clients, but you get to reclaim any VAT paid on business expenses. An accountant can advise you on VAT matters.
You must keep records of your business income and expenses for your tax return. You’ll also need to keep records of your personal income. Legally you have to keep "accurate records", but these can be kept digitally. So there's no legal requirement to keep physical receipts – make sure you have a back-up just in case.
You’ll need to keep records of:
- all sales and income
- all business expenses
- VAT records if you’re registered for VAT
- PAYE records if you employ people
- records about your personal income
You do not need to send your records in when you submit your tax return but you need to keep them as proof in case you are asked to show them.
There are many app-based products that can help with record keeping and tax returns from receipt trackers, through accounting software to banks. Examples include: Starling Bank, Monzo and Coconut. These will track your income and expenditure over the year and estimate your income tax and National Insurance liability for you.
When you take out a student loan, you’re automatically enrolled into a plan. The plan you’re on will determine when you have to pay back your loan and the different thresholds you’ll be charged against. Repayment amounts will depend on your earnings, when you took the loan out, the nation in the UK you were living in, and whether you studied an undergraduate or postgraduate degree.
If you are PAYE the payments will be deducted through payroll. If you are a sole trader it will be calculated on your tax return.
Pensions are long-term investments that you put money into regularly (e.g. monthly), typically into funds that buy bonds or shares with the aim of growing your pot exponentially over the years. Pensions are a big challenge when you are a freelancer. Cash flow can be very erratic, which means it can be hard to find a set amount of money to lock away on a regular basis, and on top of this you must research and set up any pension scheme yourself – a qualified financial adviser can assist you with this.
Sector-specific information for film and TV
There are very complex arrangements with HMRC about the employment status of different roles in the film and TV sector and to this end HMRC publish an Employment Status Manual for the sector. The company contracting your services will be aware of these guidelines and should contract you accordingly.
If your work involves different roles, depending on the size of the production, you may find that you undertake a mix of roles that are self-employed and roles that are PAYE.
For example, on a short film you are a production manager, which is a self-employed role, but on a bigger factual series you are a production co-ordinator, which is a PAYE role.
The seven-day rule applies to those whose work within the entertainment industry, with a succession of different employers, and are engaged for 6 days or fewer for each contract.
Employers need not deduct income tax from payments made to these employees. However, National Insurance will be paid in the usual manner.
Sometimes referred to as an “LP10 Letter” or “Letter of Authority”. If you are a freelance worker, not a head of department or supplying specialist equipment, and work for many companies simultaneously, you may be eligible for a letter from HMRC that grants you eligibility to be self-employed. Its name comes from a TV vision mixer, Ian Lorimer, who won a court case to prove his work should be classed as self-employed. The BBC website has details of how to apply for an LP10 letter.
For more information about tax and self-employment in film and TV, you can contact The Film & TV Production Unit.
The Film & TV Production Unit
HM Revenue & Customs Floor
2, Weardale House
Tyne and Wear
Phone: 0300 123 2326