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I am an employee in the UK on a mid-income contract, and my income gets taxed through my employer's HR, without action needed from me. My contract allows me to do some bits of private consultancy, for which I can charge independently. This is the first time I'm earning something extra as a consultant (about £4,000), and I was told I have to issue an invoice to get paid, declare it, doing a tax return, where it will get taxed at 40% or so. As I am totally new to this process, I have the following questions:

  1. As a freelancer, how do I issue an invoice? Does it make sense to use Paypal or similar platforms? Do I need a VAT number? Do I have to charge VAT? How is supposed to pay the VAT?
  2. Are there ways to avoid/reduce the 40% tax? It seems enormous on such a small amount of income.
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  1. Issue an invoice by writing down some numbers and presenting it to your client. What software you use to accomplish this is pretty much up to you. I keep the amounts in a spreadsheet and export the "pretty" page to PDF before emailing it.

The current VAT registration threshold is £85,000. You must register for VAT if your taxable turnover exceeds that amount in any 12 month period. If you do register for VAT, you'll have to (a) include your VAT on all your invoices so your clients know they can claim it back, and (b) pay HMRC according to their schedule.

  1. Unless you're already in the 40% tax bracket, I don't see why you'd be paying 40% on additional income.
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