Monday, 27 January 2014

Freelance artists and taxes - what you really need to know

Render unto Caesar what is due to Caesar
The tax code in the UK runs to 10,000 pages, and there is no human being who knows the whole code. But, every freelance artist needs to know at least the basics. Below is a short introduction to how the system works, from a self-employed artist's perspective. It is by no means complete, and it is no substitute for paying a qualified accountant to give you proper advice (which is highly recommended), but it should explain some of the basic rules of tax survival for freelancers, and get you pointed in the right direction.

1. What is a freelancer? 
A freelancer is a self-employed person. It means you are running a small business, selling your services. For a more detailed view on what exactly a freelancer is and what they do, see our post here on Portfolio Careers. The key thing about being a freelancer is you work for many different clients. You are independent, you use your own equipment, you work in your own time. You are not an employee of a company (but see para 5 below).

2. Do I need to register as a freelancer? 
No. the UK Government is (generally speaking) very business-friendly, and the bureaucracy imposed on small businesses is minimal compared with many other countries. You don't need to register as a freelancer, though you must submit an annual tax return and declare all your freelance earnings.

3. Do I have to pay income tax on my freelance earnings?
Yes - but not immediately. Let's say you invoice a client for £100 for a small animation job. The client pays you £100. No income tax is deducted from that payment - yet. However, that doesn't mean the government doesn't want their percentage. They do, but they will generally wait until the end of the tax year to take it, when you file your income tax return. And you don't have to pay any tax at all until your earnings exceed £10,000 per annum. So, until you start to make proper money, your tax liability will be very small.

4. What is VAT - and do I have to pay it?
VAT stands for Value Added Tax. In plain English, it is a sales tax, levied on almost all the goods and services you and I buy every day. The good news is, you don't need to worry about VAT until your income exceeds around £79,000 per annum. Once you are earning over £79,000 a year, you will have to charge your clients an extra 20% on top of your existing fee, and the hand that 20% VAT over to the Inland Revenue. So, for most of us freelancers, VAT isn't really a problem, until your business grows to become seriously successful.

5. I have a day job at Sainsbury's - can I still work evenings as a freelancer?
Of course! You can combine a day job with freelance animation or digital artwork during evenings and weekends. Lots of artists do just that, while they are establishing their careers. So, you can be an employee during the day, and a freelancer at night.

6. Can I claim expenses against my income?
Yes. You can offset the legitimate costs of the doing business against your profits. Legitimate expenses might include a new computer, Wacom tablet, stationary, computer software and licenses. If you work from home, you can claim a modest part of the cost of heating, renting and lighting your home office. You must keep your receipts for any purchases which relate to the cost of doing business, so that you have proper records.
7. How does that all work in practice?
It works like this: let's say you buy a new computer for £1,000 and you have other legitimate expenses of around £4,000. When you file your tax return, you can offset this against your business income. Say you earned £20,000 in freelance income over the course of the year.  You subtract your expenses of £5,000, so you only have to pay tax on your profit of £15,000, not your gross income of £20,000.

Everyone needs a good accountant

8. Do I need an accountant to help me figure it out?
You don't necessarily need one - but it is highly recommended. A good accountant, especially one who is familiar with the world of artists and freelancers, knows which expenses are legitimate and which are not. They can save you a good deal of money, entirely within the law.


(Editor's Note: For more information on working as a freelancer, check out our recent post on Portfolio Careers.  For advice on careers, check out our guide to animation careers here. For more on what studios look for in a great demo reel, try this link, hear what London's Blue Zoo has to say about finding work, and take a look at this video by Sony Pictures Animation. You can also watch Alex's ten minute video on creating a great reel, and read this post on the perfect demo reel. Also, check out our guide to animation careers here, and also take a look at this map of digital studios - a great place to start your search for work in the business. Learn the nuts and bolts of freelance life by reading our guide to invoicing clients, and don't forget to read our guide to putting together a great CV.) 


  1. Hi, thanks for the informative post. A lot of questions I've had but been unable to find an answer to are all here. Can I ask which form would be needed? I've tried searching on the HMRC website for one that looks appropriate with no success, although it's likely I'm just not sure which one exactly I'm looking for.

    Thanks again

  2. Not sure what you mean by "which form would be needed".....for what?

    1. Sorry, should have made myself clearer. After some more reading, I'm assuming that someone working as a freelancer who hasn't registered/doesn't own a business would apply for self assessment online, to declare their earnings?

    2. No. This is the whole point, you do not need to register, or apply for self-assessment. You cannot apply on line because there is nothing to apply for. You simply file a tax return at the end of the tax year. That is it.

    3. Ok, thanks. I guess my question then, is how you'd go about filing a tax return at the end of the year without using self assessment? Is there a form for this?

  3. To file your tax return online you simple Google "file tax return online" - here is the link:

    1. This link brings you to a self assessment page, so just to confirm- you do indeed to register for self assessment to get your UTR, which you'll need when you'll file your tax return?

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  5. what About insurance as a freelance
    artist , Do u need one?

    1. Hi Khaled, no I don't think insurance is necessary. I am not really sure what you would need to insure yourself against....

  6. Every tax payer, be it individual sole trader, partnership, company director, high net worth individual, higher rate tax payer, rental property landlords, retired pensioners, CIS tax payers, is likely to be on the Her Majesty Revenue and Custom (HMRC) Self Assessment tax returns system.Let V P Associates help you with completion and filing of your Self Assessment Tax Returns as an authoritative source and expertise gained over many years.

  7. I started freelancing in the U.S in March. I'm not looking forward to doing my taxes next year. Not only do I have my part time "day job" but I have revenues from 3 different sites, and a simple retirement plan from the "day job". Maybe your right..maybe I do need an accountant...

  8. A good accountant should always save you money. Plus, they will remove much of the stress from the annual process. The system is very complex and getting more so all the time.

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