How taxing should freelancing be?

We’ve been doing some research into the freelancer segment of the accountancy and finance professions recently, and one of the most surprising things we’ve uncovered is that a big chunk of accountancy professionals currently working in the UK are paying too much tax. As a result, some are missing out on 10 per cent of their own take-home pay.

On the face of it, the reasons for this happening are perfectly understandable. For one, when you spend all day focussed on somebody else’s finances, the last thing you want is a Busman’s holiday in your own down time. Another reason is that temping or freelancing is not as ‘mature’ in accountancy and finance as it is in the IT sector, for example.

But there are a growing number of freelance finance professionals in the UK, and a lack of awareness of the payment options open to them is coming at a cost.

The report we commissioned found that there are currently in excess of 86,000 accountancy professionals working as contractors or on a freelance basis in the UK. In addition, and largely due to the way in which they choose to manage their own finances, over 43,000 are failing to take advantage of all the benefits of working for yourself.

This biggest loss of take-home pay is caused by how accounting and finance freelancers are managing their own tax affairs. The report found that:

• 29 per cent of freelance accountants are paid via their recruitment agency’s PAYE system;
• 21 per cent are working as a sole trader;
• 29 per cent are working via their own limited company.

Those working as a sole trader or via agency PAYE (50 per cent) are not taking full advantage of the tax benefits of contracting or freelancing.

There is a well-documented trend that more and more accountancy and finance professionals are deciding to work on a contract or freelance basis. This could be professionals looking for a stop gap between permanent roles, recent graduates looking to add good names to their CVs, people who have moved to a new region or women returning to work after time out to raise a family, or accountants who are attracted to the lifestyle of flexible freelance working and are genuinely in business on their own account as a career choice.

From an employer’s point of view, at a time when there is a general lack of economic confidence in the UK around employing permanent staff and the cost of recruitment, it is a cost effective solution to a staffing need and a potential way of navigating round a head count freeze.

However, as 50 per cent of freelance accountants are working via a sole trader or agency PAYE model, they are missing out on the tax benefits of working in this way.

Working via an umbrella company, for example, means that freelancers can benefit from a hassle-free solution that allows them to claim tax relief on legitimate business expenses incurred for travel and subsistence, ultimately leaving them with more take-home pay in their pocket.

Although by no means a new way of working, freelancing is a growth area in accountancy, and freelancers are still working out the best ways to work and ensure they are paying the correct amount of tax. There is a duty of care here for the agents that place them; they also need to be fully aware of all the options open to freelancers and be able to advise on those that are the most tax efficient. For anyone about to take the plunge, it’s worth fully examining all the options available and making an informed decision on the best way to manage your business.


Rob Crossland is the Chief executive of the Parasol family of companies, which also includes ClearSky Accounting, and provides umbrella PAYE services to over 9,000 freelancers in the UK.

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Freelancing is a growth area in accountancy, and freelancers are still working out the best ways to work and ensure they are paying the correct amount of tax.