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Streamline your freelance tax management with Hourly: A guide for UK freelancers

As a freelancer in the United Kingdom, managing your taxes can be a complex task, especially when you have clients across different countries. With various tax rules and currencies to consider, it's essential to have a tool that simplifies tax management and ensures compliance.

Hourly, a comprehensive freelancing app, can help you navigate the complexities of UK tax rules and seamlessly manage your freelance business. In this blog post, we'll discuss how Hourly assists with tax management and the tax rules you need to keep in mind as a UK freelancer.

Setting tax rules for clients with Hourly

Hourly allows you to set tax rules for each of your clients, making it easy to manage your taxes and stay compliant. You can categorize your clients as Taxable (+ tax rate), Non-taxable, or Reverse Charged, depending on their location and the services you provide.

  • Taxable clients: For clients within the UK, you'll generally need to charge Value Added Tax (VAT) at the standard rate of 20%. With Hourly, you can set the tax rate for each client, and the app will automatically calculate and include the VAT in your invoices.

  • Non-taxable clients: If you're providing services to clients outside of the UK or the European Union (EU), you may not need to charge VAT. Hourly allows you to mark these clients as non-taxable, ensuring that your invoices are generated without VAT.

  • Reverse charged clients: For business clients within the EU, the reverse charge mechanism applies, meaning the client is responsible for accounting for the VAT. Hourly enables you to mark these clients as reverse charged, so the VAT is not included in your invoices, and a note is added to indicate that the reverse charge mechanism applies.

Handling different currencies

Hourly simplifies the process of dealing with multiple currencies by allowing you to set the currency for each client. For example, you may have clients in the United Kingdom using pounds sterling (GBP), clients in the European Union using euros (EUR), and clients in the United States using US dollars (USD). Hourly will automatically convert your hourly rates and invoice amounts to the appropriate currency for each client, making it easy to manage your international business.

Tax rules to keep in mind as a UK freelancer

  • VAT registration: As a freelancer in the UK, you'll need to register for VAT if your annual turnover exceeds £85,000. Once registered, you'll need to charge VAT on your services and submit periodic VAT returns.

  • VAT exemption: Some services, such as education, healthcare, and certain artistic services, may be exempt from VAT. Be sure to check if your services qualify for any exemptions and adjust your tax settings in Hourly accordingly.

  • Intracommunity transactions: When providing services to business clients within the EU, be sure to obtain their VAT identification number and verify its validity using the VIES system. This information should be included in your invoices for reverse charged transactions.

  • Record keeping: As a freelancer, you're required to keep records of your business transactions, including invoices and receipts, for at least six years. Hourly makes it easy to maintain these records by storing your invoices and client information securely within the app.

Navigating the complexities of UK tax rules can be challenging for freelancers, but with Hourly, you can simplify tax management and ensure compliance. By setting tax rules for each client, managing different currencies, and keeping track of essential tax information, Hourly is an invaluable tool for UK freelancers looking to streamline their tax processes and focus on growing their business.

  1. VAT registration threshold: HM Revenue & Customs (HMRC) - https://www.gov.uk/vat-registration-thresholds

  2. VAT rates: HM Revenue & Customs (HMRC) - https://www.gov.uk/vat-businesses/vat-rates

  3. VAT exemptions: HM Revenue & Customs (HMRC) - https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services

  4. VAT reverse charge: HM Revenue & Customs (HMRC) - https://www.gov.uk/guidance/vat-how-to-report-your-eu-sales

  5. VIES system: European Commission - https://ec.europa.eu/taxation_customs/vies/

  6. Recordkeeping for businesses: HM Revenue & Customs (HMRC) - https://www.gov.uk/running-a-business/keeping-records

Please note that the information provided in the article is for general guidance and may not cover all specific situations or nuances. Freelancers should consult with a tax professional to ensure they are fully compliant with UK tax laws and regulations.