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Ask an accountant! Fashion freelancer edition

You sent us your tax questions. We went to the experts.

Whether you have been freelancing for a while, or you are thinking about it, one thing is sure: Taxes are hard. We asked our readers to share their burning questions about the bewildering world of self-employment and we reached out to an expert to get all the answers. Right after tax-filing season, James Wood from Hilton Consulting Ltd shed a light on pensions, expenses, and income management.


What is the difference between being a sole trader and having a limited company?

A sole trader is essentially a self-employed person who is the sole owner of their business, they have unlimited personal liability for the business whereas a Limited Company is legally separate from its owner who has limited liability. The other main difference is how they get taxed. A sole trader’s profit gets taxed on their self-assessment tax return. A limited company pays corporation tax on the profit and the owner of the limited company only gets taxed personally on what they withdraw from the company whether that is a salary or dividends.

As a creative, what can I put under my expenses? Is there anything I can count as an expense that I could not expect I could?

A tax-deductible expense has to be wholly and exclusively for the business. Typical expenses include travel; computer and tech equipment, software (eg. Adobe Suite), books and reference materials; coworking and rental space; post/stationary and office equipment, advertising and marketing, and accountancy bills. With more and more people working from home you can put through a proportion of the additional costs associated with working from home.

What is the easiest way to calculate how much money I should set aside every time I get paid? 

Setting aside 30% of your earnings every month should cover any potential tax and national insurance due. There is no hard and fast rule as tax rates vary depending on profit level and whether for example, additional student loan payments might need to be made.

As a freelancer, will I get a pension when I get older?

If you are making National Insurance contributions every year you will be entitled to a state pension. But it is a worthwhile idea to set up a personal pension and make contributions every year. You get the added benefit that any contributions you make in the year increase your basic rate tax band – meaning more of what you earn is taxed at 20% rather than a higher rate tax at 40%.

What happens with maternity leave for freelancers? Should I be saving for this? Is there a way to plan around it?

Unlike an employee, self-employed freelancers are not entitled to the regular Statutory Maternity Pay (SMP). Instead, freelancers can apply for a Maternity Allowance (MA). If you meet the following criteria you will be entitled to £151.20 a week (or 90% of your average weekly earnings, whichever is less) for 39 weeks of maternity leave.

To qualify, you need to have been self-employed for at least 26 weeks in the 66 weeks before the baby’s birth, and you will need to have paid Class 2 NI for at least 13 weeks within the 66 weeks before the baby’s due date.


Check out our article on how to make an invoice as a fashion freelancer