What should I know about paying taxes for working from home as a new resident in the UK?

Question

I am soon moving to the UK. (I have been a freelance web designer and developer.)

• What would I need to be sound in the UK and to be fit to work online as a freelancer?
• Will it include paying any tax or paying any insurance?
• Will I have to register myself as a company or can go on unregistered and work?
• When the money comes in my account, will I be accountable to government of UK to tell them the source of income?
• What should I be knowing about health insurance and things that are necessities in UK for a freelancer?

Answer 1

You can find a lot of information at the HRMC website at http://hmrc.gov.uk.

If you don't want to work as an employee, you can register as self-employed (basically a one-man band), which is quite simple, you can start your own company, which is more work but can have tax advantages, or you can find umbrella companies which will officially employ you while in reality you are a freelancer and only do your billing through them.

Umbrella companies can be anywhere from totally legal to extremely dodgy. If they promise you that you pay only five percent tax on your income through ingenious tricks, that's only until the tax office finds out and they will make you pay.

Between self-employed and your own company, the big difference is whether you are actually working independently or not. If you work like an employee (take someone else's orders) and claim you are a company, the tax office doesn't like that. And if you pay very little taxes, they don't like that either. So self-employed is the safer choice but you will pay more taxes, close to what a normal employee would pay.

Obviously you will have to pay tax on your income and NHS insurance.

Obviously you are required to tell the government (actually HMRC) about your income. Not doing so would be tax evasion and get you into deep trouble when you are caught.

I don't think you have to tell them the source of your income, but not telling them might look very suspicious and might get your accounts checked carefully. And unless you design a website for the mafia, why wouldn't you tell them? The bill payer will try to deduct your bill from their profits anyway, so it's no secret.

Most important to remember: When you send out a bill and receive payment, you'll have to pay tax on it. When self employed, as a rule of thumb put one third away into a savings account for your tax bill. Don't spend it all or you will find yourself in deep trouble when your taxes need paying. Plus put some more away for times when you can't find work.

Answer 2

You will be categorized as self employed.

Will I have to register myself as a company or can go on unregistered and work

You can register a company or can use an umbrella company or work as a sole trader. Remember as a sole trader you are legally responsible for you company's activities, an if a company sues you for your work he can take compensation from your personal assets. As a company your liability ends with the company, if your company is sued. Your personal assets are outside the purview of the lawsuit, but the court can attach that also but those are rare. This doesn't matter if you use an umbrella company.

If you intend to be doing this for a short time(maybe a year or so), go for an umbrella company. Else register a company. will take you 5 minutes to form one. Depending on your earning you might need to register for VAT too. A comprehensive guide for self employed on HMRC.

what would i need to be sound in uk and to be fit to work online as a freelancer?

The same as above.

Will it include paying any tax or paying any insurance

Yes you have register for National Insurance(NI), before you can pay yourself a salary. The benefit of a company is you pay yourself a minimum salary, below the limit above which you have to contribute for NI, and take the rest as dividends. And pay no tax on it, till you don't exceed the limits.

When the money comes in my account, will i be accountable to government of uk, to tell the source of income?

If you are operating through a company, yes you would need to show your income(including source) and expenditure when you do your annual returns.

What should i be knowing, like health insurance and things that are necessities in uk for a freelancer ?

No health insurance as NHS exists. You can take out health insurance if you don't want to get into queues in NHS.