When actors need to register as sole traders, how they calculate tax and how taking on additional work affects this.
As a self-employed actor, whether you have an agent or not, you’re a freelancer. In most cases, for the purposes of HMRC, your legal status is ‘sole trader’.
These terms might appear daunting at first, but you don’t need to worry about them. It’s simpler than you might think to become a freelancer in the UK – including setting yourself up, calculating taxes and managing your business.
When Do I Need to Set Up as a Freelancer?
HMRC recommends registering as a sole trader as soon as possible. Legally, you must register once you earn £1000 from self-employed work in a tax year.
The latest you can sign up is 5 October in your second year. If you haven’t registered by then, you could face a fine.
Generally speaking, it’s advisable to set yourself up as soon as you graduate or decide you want a career in acting or performing.
How Do I Start Myself as a Freelancer?
The good news is that this process is simple and free.
Just go to the HMRC website and choose ‘Set up as a sole trader’ (or you can apply by post if you prefer). Remember – you won’t find an option to set up as a freelancer as that’s not a recognised business structure for HMRC.
When registering, you’ll need to provide the following information:
- Name (it’s recommended that performers also use their name as their business name)
- Address
- National Insurance Number
- Date of Birth
- Freelancer start date (use the date you’re registering unless you’ve already started working)
- Contact details
Typically, you’ll receive your UTR number and activation code by post within 10 days of registering. Once you receive them, activate your account, and you’re officially ready to start your freelance career.
There’s no need to register with Companies House – you don’t have to worry about VAT (unless your taxable turnover is expected to be more than £90,000) and you won’t need a lawyer or accountant at this stage. You can, of course, register for VAT voluntarily if you wish.
How do I Calculate Tax as a Freelancer?
Profits and Expenses
You’ll only pay tax on your profits, which is calculated by subtracting any eligible expenses from what you earn. These must be costs specifically related to your work, such as job-specific clothing or travel. Agent fees, your Spotlight membership and expenses associated with role research are also deductible. So, if you need to go to the theatre or buy a DVD to nail your next role, this may be an eligible cost!
Things like phones, which you also use personally, are not tax deductible. While travel costs are allowed, if you land a long-term role in one location, this is likely to be classed as a commute and is no longer tax deductible. Likewise, you can’t claim for food and drink purchased on the go as these are standard daily expenses.
The chances are you’ll do admin, learning lines and role research from home. If you work more than 25 hours a week from home, you can use HMRC’s simplified expenses table rather than spending time and effort trying to calculate the proportion of personal professional use of your home.
If you’re unsure about whether you can claim for a specific expense, it’s best to call HMRC.
Keeping Track of Your Income and Spending
Accurate accounts are essential, but you won’t be responsible for working out how much tax you owe. All you’ll need to do is keep a record of your income and expenses for the tax year. You can do this with pen and paper, a spreadsheet or using third-party bookkeeping software. The most important thing is that you keep all invoices, receipts, etc.
Most freelancers open a new bank account for their business income and expenses to avoid confusion with personal spending.
Tax Bands and Your Personal Allowance
It’s advisable to make yourself aware of your tax obligations. At the time of writing (August 2024) the personal tax allowance in the UK is £12,570. That means you won’t pay any tax on your profits up to that amount.
You’ll pay 20% tax on any profits between £12,571 and £50,270 and 40% on £50, 271-£125,140. If and when you start to earn more than that amount, taxes can become more complicated and it’s worth hiring an accountant.
Your National Insurance (NI) class will depend on the amount you earn in a year. If your profits are below £6,725, you don’t need to make Class 2 contributions. However, you can make voluntary contributions. This is recommended to make sure you keep up to date with your annual contributions.
If your profits are between £12,570-£50,270 per year, you’ll pay Class 4 contributions of 6%. Profits in excess of £50,270 will be subject to Class 4 contributions of 2%.
Your personal tax allowance and the tax bands may change from tax year to tax year, so keep an eye on the HMRC website for up-to-date rates and amounts.
Submitting Your Tax Return
Each tax year runs from 6 April to 5 April. After the end of the tax year, you’ll need to submit your self-assessment tax return by the end of January the following year. However, as a sole trader, your accounts should be relatively simple and it’s advisable to submit your return as soon as possible.
You can submit your financial information online and as soon as you complete your return, HMRC will calculate how much you owe in tax and National Insurance.
When Will I Need to Pay my Tax Bill?
Like any other sole trader, you’ll need to pay your tax bill by 31 January the following year. So, if you set yourself up as a freelancer in April 2024, you’ll submit your first self-assessment tax return after 6 April 2025 and must pay your tax bill by 31 January 2026.
You’ll also be required to pay a ‘payment on account’ in July 2026. This will be the first 50% of your anticipated tax bill for 2025/26 and is designed to save you from having to pay your entire bill in one hit.
Don’t worry too much if this seems a bit of a stretch. HMRC call centre staff are very helpful and you can always call them for advice or support in managing your tax account.
The best way to make sure you stay on top of your taxes is to set up a savings account and put 26% of all your earnings into it whenever you get paid.
If I’m a Freelance Actor, Can I Take on Other Work?
Yes. There’s nothing to stop you from taking on other work – often, when you’re starting as an actor or performer, this is essential. If you’re employed in a PAYE role alongside your acting work, you’ll need to inform HMRC.
Bear in mind that you can only have one personal tax allowance (the £12,570 you can earn before paying tax). You can apply this to just one job or split it between them. In either case, when your total profit or earnings for the tax year goes above £12,570, you’ll be liable for tax.
In a PAYE position, tax is typically deducted from every pay packet. If you end up paying too much tax in any year, you’ll usually get a rebate shortly after 6 April, after you have filed your tax return.
One of the benefits of being a sole trader is that there are no restrictions on how you earn money. You can get a job in the gig economy, use your performance skills (singing, coaching, etc.) or take on any other freelance work without having to inform HMRC.
Lots of graduate performers do other types of freelance or gig economy work that allow flexibility to attend auditions and can help top up income when they land their first acting/performing roles.
Of course, you’ll need to make sure your accounts remain accurate and you can account for all income and expenses. When it comes to submitting your tax return, you’ll only need to submit the overall figures for income, expenses and profit. But anybody can be asked to provide evidence of this, so you’ll need to keep the information to hand.
If you use an accountant, they will need to see this evidence in order to accurately calculate the tax owed. By law, you must be able to provide accounts for the past five years.
Sick Pay and Pension Contributions
As a freelance performer, you won’t have benefits such as sick pay or pension contributions. It’s also important to remember there is no statutory sick pay for self-employed people.
You might not want to think about it, but if you were to pick up an injury that prevented you from performing, how would you make money? Self-employed income protection insurance can help you avoid falling into financial difficulty if injury or illness strikes.
Likewise, retirement might seem like a long way off right now. But the earlier you start saving for retirement, the more comfortable it’s likely to be. Many pension companies allow freelancers to take out a flexible plan with a minimum monthly contribution of around £25. Top-up payments are allowed so that you can put in more in the months you do well.
How Can I Freelance with No Experience?
The most important thing to remember when starting out is that ‘freelance’ is just a term to describe your self-employed status. Your expertise and experience come from your acting training and previous work.
By following the steps outlined in this guide, you’ll tick all the administrative aspects of freelancing. Then it’s down to your talent and determination to make your career a success.
Be realistic with your expectations and sensible with your money. Calculate the minimum amount you need to earn each month and make sure you have a plan in place for when acting work is scarce, but take care of yourself as well.
There will be quiet times when you have less work coming in. During these times, gig economy roles can be really useful, but it’s also important to make sure you allow yourself to take a break.
Acting can be full-on and when you’re in work, you won’t always have time to fully enjoy your downtime. So, when you do get some, embrace it and give yourself some time to breathe.
Finally, don’t be afraid to ask for help. If you have any questions about freelance work, go online or speak to other actors for advice. Often, there are simple answers to your questions that will not only help you make the most of freelancing but will also take away some of the stress associated with self-employed work.
Take a look at our website for more tips and advice for self-employment. You may also find our podcast episode about how to use Spotlight as a self-represented performer interesting.
