Taxes & Finances
Being self-employed has many perks, you are your own boss, set your own hours, and negotiate your own pay. However, you are also responsible for filing your own tax return.
When you work for a company as an employee, your taxes are taken out of your paycheck for you. As a freelance filmmaker, you will need to send invoices, deduct expenses, and also budget for tax.
This can all seem very complicated at first, but when you file your first tax return you will find that this is a straight forward process. Below you is a step by step guide on how to prepare your taxes and finances as a freelance filmmaker.
How Tax Works
You will likely be self-employed as a filmmaker. And when you do decide to freelance full-time you need to let the taxman know. This first step is easily done by registering for a self-assessment on the HMRC website.
Once registered you will then receive a letter containing a 10 digit unique taxpayer reference. You will need this reference number when you pay your taxes later. HMRC will then set up your online assessment account. Now you will be officially registered as self-employed.
To start paying tax in the UK you need to earn more than £12,570 a year (2021-2022 tax year). This is your personal allowance. How much tax you pay after your personal allowance depends on how much you earn.
Earn less than £50,000 a year and your tax is 20%. Earn between £50,000 – £150,000 and you pay 40%. You can also find details on the UK tax rates here → Income Tax Rates.
The UK financial year runs from 6th April to 5th April and you have until January every year to submit your tax return online. However, you are only taxed on your profit and as a freelancer, you can deduct your expenses from your profit.
Next, we will look at how expenses deductions work.
The taxman knows that it costs money to run a business. When you are self-employed you can deduct some allowable expenses from your taxable profit. Find a full list of allowable expenses here → Expenses for the Self-Employed
As mentioned you are only taxed on your profit. So for example, if your turnover is £30,000 and you spend £10,000 on allowable expenses. You only pay tax on £20,000 (aka your taxable profit).
Here is a list of things that count as taxable expenses.
- Travel, fuel and parking costs to and from work
- Office costs, stationery, phone bills, office rent
- Equipment, hardware, rent or purchases
- Clothing expenses, any specialist clothing
- Advertising and Marketing, website costs
- Training courses related to your business
- If you work from home you can use simplified expenses
Altogether if you deduct your expenses from your net profit, your taxable profit can be considerably less.
When you complete a yearly tax return you will need to have a clear idea of your profit and expenses. This can be as simple as keeping a monthly list on paper, or a computer document. You will also need to keep evidence of your profits and expenses receipts in case you are audited.
To help there are many accounting software apps available such as.
In the UK we also have National Insurance, this pays out your state pension and NHS contributions. If you make more than your personal allowance you will additionally pay your National Insurance at the end of the year. You can use a National Insurance Calculator to work out how much you owe.
You might also have student loan repayments. How much you pay back will depend on what year you got your loan and how much income you make.
One of the main disadvantages of being a freelancer is that you are no longer entitled to sick pay or paid holiday leave. So you will need to prepare and save up for this yourself. If you pay National Insurance contributions you are eligible to claim a Maternity Allowance.
In addition to this, there is no workplace pension for self-employed freelancers. If you pay your National Insurance contributions you can get a state pension from the government. You might also wish to set up a self-invested personal pension (SIPP), this is a private pension you set up for yourself.
As you can see being self-employed can be a challenge, especially when you are first starting. For extra support, you might also wish to join a film union such as BECTU. They can offer tax advice, legal protection, and career guidance.
When you complete a job you will need to send off an invoice to get paid.
This is simply a document stating what work you have done, how much you will get paid, and your bank details. You will get paid typically within 30 days of sending your invoice, however, some companies pay much later. Therefore you should negotiate payment terms with your employee before you start work.
An invoice is a single page long and must contain the following basic information.
- The word ‘Invoice’
- The date of the invoice
- Your name and address
- Your employer’s name and address
- A brief description of the work you have done
- The total amount you are charging
- Payment terms (e.g. within 30 days)
You can also download a free invoice template from our film production forms section.
Your Tax Return
When you are self-employed you only need to complete a tax return once a year.
The tax year is between 6th April to 5th April every year. For each year you need to complete your online tax return by the 31st January. So you have a lot of time to file your tax return, but if you fail to do this there will be Penalties.
Once you have submitted your tax return you will have to pay any tax and National Insurance you owe. You can pay your taxes in full or through monthly payment plans. However, it is a good idea to be on top of your taxes so that they don’t eat into next year’s profit.
Given these points, you should try keeping aside at least 20% of your monthly profit. This is the simplest way to make sure you can pay back your tax at the end of each year.
If all this sounds too complicated you could always hire an accountant to do this for you. Qualified accountants can be costly, they can be around £400-£1200 per year.
Tax doesn’t have to be complicated or stressful. Make this process as easy as possible, by taking the time every month to calculate your profits and expenses in advance.
Based in the US? No problem check out this complete guide to filing self-employment taxes.
Next, learn about..
- Finding Film & TV Work
- Marketing & Self Promotion
- Managing Clients
- Taxes & Finances
- Education and Skills
- Industry Sectors
- Film Crew Glossary
- Production Crew Rates
- Useful Links
- Free Film Production Forms