Tutoring as a Freelancer - what are the tax implications?
Introduction and Disclaimer:
First of all, I'm not a lawyer, a tax expert, an accountant or in any other profession where you might get legal advice on these matters.
I'm simply a teacher-turned-business-owner, who's been asked the same types of questions many, many times over the last 10 years of running Ash Tutors (namely: do private tutors need to pay tax?), so I've decided to answer them in the form of this article.
My answers are based on my own 'internet-research' and experience. In no way does this constitute advice or a recommendation. I DO advise you to do your own 'due diligence', as laws change and ultimately, it's your own responsibility, not mine.
What is a 'freelancer', and is a private tutor classed as one?
A freelancer is someone who works to perform a task or service, usually in addition to their other 'employed' work, and receives payment for this work.
The pay rates per hour are usually quite high, but there are no other benefits usually associated with employment; paid holidays, sick pay, overtime, maternity leave, redundancy and so on...
A freelancer is considered a 'self-employed' person.
If you work with Ash Tutors or register for any of the 'directory-style' tuition companies, you're likely to be doing this as a freelancer. 'Some' tuition companies employ their tutors - like Kip Mcgrath, Kumon and others. But these tend to be the 'centres' where students are taught in groups, none of the one-to-one companies that I'm aware of employ their tutors.
Amongst the benefits of freelancing include the higher hourly rates, the freedom to choose clients, when and where to work and in the case of tutoring, how to teach.
At Ash Tutors, we ask only that our tutors adhere to a set of professional criteria and standards, and in return, we offer
Do I need to pay tax?
Every person who earns income in the UK must pay tax on their earnings - this is a legal requirement and not open to debate.
If, for example, you repair a friend's car for £50, or cut a hedge for £30, or walk a dog for a tenner, you're still freelancing and legally required to declare that income.
As a private tutor, you're legally required to register with HMRC - usually as a SOLE TRADER.
This involves a simple online form to complete - which you can access here: https://www.gov.uk/set-up-sole-trader
Registering as a sole trader will give you the advantage of being able to offset any business expenses you incur against any income tax you may pay.
For instance, do you travel to a client's house? Have you purchased teaching materials or resources? Do you spend time planning at home, and use printer-ink, lighting, heating and so on...
Do I need to tell my school / employer?
You are NOT legally required to tell your school or main employer - UNLESS it's specifically written into your contract that you can't take on additional employment.
However, why keep it a secret? I don't see any reason a school wouldn't applaud your efforts at further honing your teaching skills.
HMRC will NOT contact your employer, as tax affairs are confidential, and neither will Ash Tutors.
So what do I need to record?
You should record details of all lesson dates, payments made or received, and you should keep receipts. That's it!
A good idea is to put 20% of all payments received from tutoring to one side, ready for your next tax return.
What about the dreaded self assessment / tax return?
All self-employed people (sole traders) need to do an annual tax return after the end of the financial year on 5th April.
You can complete it yourself online - if you fancy saving some cash.
Or, you can employ the services of an accountant, a book-keeper or some other friendly self-employed person you know!
At Ash Tutors, we have an agreement arranged with Grosvenor Tax Services, who will answer all your questions and complete this form for you - for around £120 per year (at time of writing). This is just an option should you wish to use it.
Personally, I'd rather have them do it
When should I register with HMRC?
Once you've started earning some income from tutoring then it's a good idea to register with HMRC as soon as possible if you intend to carry on tutoring. There are all sorts of 'ifs' and 'buts' centred around your personal circumstances - all of which a decent accountant would help you with - but if you're like me and prefer to play it safe, just register and get it over and done with.
You can delve deeper into the 'ifs' and 'buts' at this government website page which tells you all about your allowances if you're setting up as self-employed.
What's this £1000 allowance all about?
So, you've been on the HMRC website and read that there's a newly introduced (as of 2018) allowance of £1000 per year - where you don't need to register as self-employed, nor do you need to declare your income if your earnings from tutoring are below this amount.
This is true. However...
A tutor who teaches 1 child per week, at £25 an hour, for 52 weeks of the year would earn £1300.
So for the vast majority of tutors it's as well just registering in case you forget!
So, to summarise...
...as a freelance tutor, you should probably do the following:
1. Register (as a sole trader) with HMRC (within 3 months)
2. Keep records of your tutoring (dates, earning and expenses)
3. Put 20% of your earnings to one side, to pay your tax bill
4. Decide whether you're going to tackle your tax return yourself, or pay someone else to do it
5. Enjoy the satisfaction of making a difference to a child's life, and enjoy spending your extra cash!
Is it all worth the hassle?
Some teachers might be wondering at this point whether it's all worth the extra hassle involved - only you can answer that.
As with most things written down, it can appear far more complicated than it actually is in reality.
Registering with HMRC is a 'one-and-done' job. Keeping records of tutoring is a 5-second job.
And if like me, you hire an accountant to do your tax return, then nothing else in the way of 'hassle' is required from me. So in my case, yes, absolutely it's worth it.
And so too, think the thousands of private tutors across the country in this still-growing industry that's been around since the Ancient Greek times.