Most people dread bureaucracy. Yet it is an aspect of society that must be considered, especially in the freelance world typical of today’s working environment. This is the reason why we have tried to present you with typical scenarios of freelance tax declarations present in Europe. Here are three freelancers within the EU who practice their professions in the United Kingdom, in Germany and in Italy and they have explained in their own words what it meant.
We have tried to tackle the nightmares of bureaucracy to get a glimpse of what being a freelancer means in these three distinct realities in terms of: economic convenience, simplicity, and overall practicality. With this article we start our series off by looking at liquid freelancing in the UK.
In between freelancing and steady employment: Alan
Alan lives in the United Kingdom. He is a professional jazz-saxophone player as well as a telecommunications employee, and declares some of his work as freelance, while another part is declared for him by his steady employer. Here is his account:
Self-employed is the correct term to use here. It is an incredibly simple method, you would have to go to Singapore or a tax-haven to find a simpler one. I contacted the HMRC, Her Majesty's Revenue and Customs, which is one of two entities involved in tax collection in the UK. "Inland Revenue" is the state department that collects Income Tax through the PAYE system (pay-as-you-earn, similar systems are found in Ireland, New Zealand), introduced in 1944.
This is a department designated to specifically handle income tax declarations, so basically I called them on the phone, and they asked for: generic information about me, the professional service I intended on offering to the public, how long I had already been in the trade, and my National Insurance number. As you start off you get a three-month grace period, for which you can hand in your taxes late without suffering any repercussions.
I didn't register for VAT payment because I am not going to reach the roof of 67'000£ of annual income, as of 2008. As a self-employed individual, in order for the HMRC to collect the right amount of taxes from the gross income, on the 31st of January you have to file from April of the previous year until the last April an entire year of earnings by going to www.hmrc.co.uk.
If you have earned less than Lower Income Level (£8,105 per year for 2012–2013), you do not apply for payment and are essentially exempt. I also work part-time for a company and from there I also pay tax, but in this case, this is done directly for me by my employer. In both cases, based on the whether you surpass the threshold gross amount of £32,010 (for year 2012-2013), you can belong to the Basic or Higher Income Tax Rate, which are respectively of 20% and 40%.
Making music and navigating the tax system
As far as my musical activities are concerned, I didn’t need to pay any tax this year as my earnings were too low. As they are counted separately, I simply didn’t have to declare. I declared above the minimum rate two years ago, and I actually ended up paying only 20£, as I was slightly above Minimum Income (which in 2010 was actually a little lower than today, and varies yearly with inflation adjustments). I also deduct expenses such as taxi, food, music-associated travel, visas, etc.
The invoices are easy to write, they require generalities, amount, type of event. I declare everything online, all of incoming and outgoing payments of the previous year. It usually takes me less than a day, by examining my yearly bank statements.
You have the option of either submitting a lump sum or detailed movements, I usually file in a single figure. Of course, the calculation may be subject to audits. It is important to respect the calendar: if you are three months late you can be fined 100£ for the delay. And after that, you get fined 10£ for every succeeding day. The total amount of the fine, however, cannot exceed the amount I owe in taxes, so for this year I am exempt.
Since the medical insurance is covered by the NHS in the UK, I can have a supplementary private medical plan, and the same applies for my pension plan because basic minimum pension in the UK is quite low. Private insurances are also common here, for example I ensured my instruments for a worldwide coverage including an on-site replacement plan, I even have all-for-new value on the instruments policy for two years. My insurance covers over 10’000£’s worth of instruments for 160£ yearly and it is tax deductible, as it is considered a maintenance expense for my freelance work.