Do I Need to Complete a Tax Return If I'm Freelancing Part-Time?

Understanding Tax Obligations for Part-Time UK Freelancers

Here's the thing about HMRC, they don't really care whether you consider your freelancing "part-time" or "full-time." What matters to them is whether you're earning money from self-employment activities. If you are, certain rules kick in regardless of how many hours you're putting in.

Think of it this way: if you're getting paid for services or selling products outside of your regular PAYE job, you're essentially running a small business. The size of that business doesn't change the fact that it exists in HMRC's eyes.

But before you start panicking about mountains of paperwork, there are some helpful thresholds and allowances that might mean you don't need to file anything at all. The key is knowing where these lines are drawn.

What HMRC Considers "Part-Time Freelancing"

Does HMRC distinguish between part-time and full-time self-employment? Not really. HMRC looks at your activities rather than the time you spend on them. Whether you're freelancing 5 hours a week or 50, the same basic rules apply. What they're interested in is whether you're:

1. Providing services for payment
2. Selling goods for profit
3. Running any kind of business activity

But what exactly are considered side hustles, casual gigs, and occasional freelance work? Your weekend photography sessions, evening tutoring, or that Etsy shop you run from your kitchen table all count as self-employment income. Even if it feels casual to you, HMRC treats it as business income once money changes hands.

The frequency doesn't matter much either. You could do one big freelance project that pays £3,000, or earn £10 a week throughout the year,both scenarios might require the same tax treatment.

Freelancing vs. hobby income: what matters for tax purposes? This is where things get interesting. HMRC distinguishes between hobbies and business activities based on your intention to make profit. If you're knitting scarves for fun and occasionally sell one to a friend at cost, that's probably a hobby. But if you're actively marketing your scarves online, trying to build a customer base, and aiming to make money, that's business income.

The line can be blurry, but generally, if you're actively trying to make money from an activity, HMRC will consider it self-employment.

When Does Part-Time Freelancing Trigger a Tax Return?

Here's some good news: HMRC gives everyone a £1,000 trading allowance each tax year. This means if your total self-employment income is £1,000 or less, you don't need to register for self-employment or file a tax return for that income.

This allowance covers all your self-employment activities combined, not each one separately. So if you earn £600 from freelance writing and £500 from selling crafts online, you've used up your full £1,000 allowance.

Once you cross that £1,000 threshold, you need to register as self-employed with HMRC and file a Self Assessment tax return. This registration should happen by 5th October following the end of the tax year in which you first exceeded the threshold.

For example, if you earned £1,200 from freelancing in the 2023-24 tax year (which runs from 6th April 2023 to 5th April 2024), you'd need to register by 5th October 2024.

You may wonder “Do I need to file if I also have PAYE income?”. Yes, having a regular job doesn't change the rules about self-employment income. Many people have both PAYE employment and self-employment income, and they need to report both on their tax return.

Your employer will continue handling your PAYE taxes as usual, but you'll need to declare and pay tax on your self-employment income separately.

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The £1,000 Trading Allowance: Can You Skip Filing?

The trading allowance is basically HMRC's way of saying "we won't bother you about small amounts of self-employment income." It's automatic,you don't need to apply for it or do anything special to claim it.

If your self-employment income is £1,000 or less, you can simply not mention it on a tax return. HMRC considers this income tax-free under the allowance.

You can use the trading allowance when:

1. Your total self-employment income is £1,000 or less
2. You don't want to claim business expenses
3. You don't have other reasons requiring a tax return

However, you might still need to file a tax return even with income under £1,000 if:

1. Your total income (including PAYE) is over £100,000
2. You're claiming Child Benefit and your income is over £50,000
3. You have other untaxed income
4. You want to claim certain tax reliefs

Here's a choice you get to make: you can either take the £1,000 allowance or deduct your actual business expenses,but not both.

If you earned £1,200 but had £300 in legitimate business expenses, you could either:

1. Use the trading allowance on the first £1,000 and pay tax on £200
2. Deduct your £300 expenses and pay tax on £900

In this case, deducting expenses would be better. But if you earned £1,200 with only £50 in expenses, the trading allowance would save you more money.

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Income Isn't Everything: Other Triggers for Filing

Self-employment isn't the only type of untaxed income that might require a tax return. If you receive:

1. Rental income over £1,000 (there's a separate property allowance)
2. Investment income that hasn't been taxed
3. Foreign income
4. Income from savings over certain thresholds

These could trigger filing requirements even if your freelance income is minimal.

Some situations require tax returns regardless of your freelance income:

1. Total income over £100,000
2. Receiving Child Benefit when you or your partner earn over £50,000
3. Being a company director
4. Having capital gains over the annual exempt amount

Sometimes filing a tax return is optional but beneficial. You might want to file to claim:

1. Marriage Allowance transfers
2. Charitable donation tax relief
3. Professional subscriptions
4. Working from home expenses

Examples of Common Part-Time Freelancing Scenarios

Let's look at some real-world examples to see how these rules play out in practice.

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Example 1: Etsy shop with £800 revenue

Sarah runs an Etsy shop selling handmade jewellery. Last year, she made £800 in sales. She spent about £200 on materials and Etsy fees.

Does she need to file? No. Her income is under the £1,000 trading allowance, so she doesn't need to register for self-employment or file a tax return. The income is effectively tax-free.

Could she choose to file anyway? She could, but there's no benefit. Even if she deducted her £200 expenses, she'd only be taxed on £600, which is still under the allowance threshold.

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Example 2: Freelance design client paid £2,500 in a year

Mark does graphic design work for a few clients in his spare time. One client paid him £2,500 for various projects throughout the year. He has about £300 in business expenses (software subscriptions, equipment).

Does he need to file? Yes. His income exceeds the £1,000 trading allowance, so he needs to register as self-employed and file a Self Assessment return.

What are his options? He can either:

1. Use the £1,000 trading allowance and pay tax on £1,500
2. Deduct his actual expenses and pay tax on £2,200

In this case, using the trading allowance would be better for him.

What HMRC Knows About You Even If You Don't File

Here's something many people don't realise: HMRC is getting better at tracking digital income. Payment platforms like PayPal, online marketplaces like Etsy, and freelance sites like Fiverr may share information with HMRC about payments made to UK users.

This doesn't mean they're watching your every transaction, but if you're earning significant amounts through these platforms, there's a digital trail.

If you do freelance work for businesses, those businesses might declare payments to you on their own tax returns or company accounts. If HMRC sees your name and address receiving business payments but you haven't declared any self-employment income, they might get in touch to ask questions.

If you should have registered for self-employment but didn't, HMRC can charge penalties. These start at £100 for late registration and can increase based on how late you are and how much tax you owe.

The good news is that HMRC is usually reasonable if you come forward voluntarily to sort things out, especially if you haven't been trying to hide anything deliberately.

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How HMRC Detects Unreported Income

HMRC uses multiple tools and strategies to identify unreported earnings. These methods are becoming increasingly sophisticated, making it more important than ever to ensure your compliance.

Data Matching: HMRC has access to information from banks, payment processors (like PayPal or Stripe), and online marketplaces such as eBay and Etsy. They use these sources to compare your declared income with your financial activity.

Example: If you sell products on eBay but don’t report these sales, HMRC can cross-reference your eBay transaction history with your bank account data to identify discrepancies.

Third-Party Reporting: Online platforms and employers are often required to report information to HMRC, including payment records for freelancers.

Example: If you freelance on platforms like Upwork or Fiverr, those earnings might already be reported to HMRC, even if you haven’t declared them yourself.

Unexplained Lifestyle: If you have a modest PAYE salary but are spending significantly on luxury items or travel, HMRC can investigate why your spending doesn’t align with your reported income.

Whistleblowers: Sometimes, it's not the technology that catches you—it’s people. Colleagues, competitors, or even former clients can report your undeclared income to HMRC anonymously.

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What Happens if You Get Caught Evading Tax?

Tax evasion is taken seriously in the UK. If discovered, the consequences go beyond just financial penalties.

Criminal Prosecution: Severe cases of tax evasion can lead to HMRC pursuing criminal charges, resulting in fines or even prison time.

Example: Richard, a side hustle entrepreneur, earns significant income for years without declaring it. When HMRC uncovers this, he faces a criminal trial, heavy fines, and a tarnished reputation.

Increased Scrutiny: Once flagged for non-compliance, your financial activities may be subject to audits, disrupting your business and personal life.

Personal Liability: HMRC can directly target your assets to recover unpaid taxes. This means that no matter how small your undeclared income seems, the consequences can have a long-lasting negative impact.

How Virtue Accountants Can Help

If you're feeling overwhelmed by all this information, you're not alone. Many freelancers find the tax side of things confusing, especially when they're just starting out or working part-time.

At Virtue Accountants, we specialise in helping freelancers get their tax affairs sorted without the stress. Our online accounting services for freelancers start from just £29.50 per month, and we can help you:

1. Determine whether you need to register for self-employment
2. Set up proper record-keeping systems
3. File your self assessment returns
4. Maximise your allowances and deductions
5. Plan for future tax obligations

We work with freelancers at all levels, from complete beginners to established professionals, and we understand the unique challenges of managing taxes when freelancing isn't your full-time job. If you’re still unsure and wonder, “Do I need to complete a tax return?” contact us today and ensure your finances are managed the right way.

FAQs on Part-Time Freelance Tax Filing

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Do I need to file if I earned less than £400?

This sounds like you might be thinking of US tax rules, where there's a $400 threshold for self-employment. In the UK, the threshold is £1,000 for the trading allowance. If your self-employment income is under £1,000, you don't need to file for that income.

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How do I handle taxes for occasional freelance work?

Keep records of all payments and any expenses, even if the work is occasional. If your total freelance income for the tax year exceeds £1,000, you'll need to register as self-employed and file a return. For occasional work under £1,000, you can rely on the trading allowance and don't need to do anything special.

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What to do if you're unsure whether you need to file?

When in doubt, it's better to be safe than sorry. You can:

• Contact HMRC directly for guidance
• Speak to an accountant (like us!)
• Use HMRC's online tool to check if you need to file

Remember, there's no penalty for filing a tax return when you don't strictly need to, but there can be penalties for not filing when you should.

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What if you filed last year but earned less this year?

If your circumstances have changed and you no longer meet the criteria for filing (for example, your self-employment income dropped below £1,000), you might not need to file this year.

However, if you're registered for self-employment, HMRC expects you to file annual returns even if you had no income. You can file a return showing nil income, or you might be able to stop filing by telling HMRC you've ceased self-employment.

The key thing is to communicate with HMRC about changes in your circumstances rather than just stopping filing without notice.