Contractors' Questions: Does a one-off contract make me a freelancer?

Contractor’s Question: I don’t have a limited company nor do I use an umbrella company but a neighbour's friend has asked me to help out with some IT work on a one-off basis. She owns a small business and her accounts are due with her accountant shortly. Unfortunately, the person that used to do her book-keeping has walked off, and it now appears that no work has been inputted for this financial year.

While I am happy to do the work, she wants me to invoice for my time, which I have worked out to be around £500, plus a new printer at £300. I work part-time PAYE and also claim working tax credit/child tax credit as a single mum. How do I go about executing this work proposal without upsetting the balance of tax?

Expert’s Answer: Because this is a one-off transaction, rather than registering with HM Revenue & Customs as self-employed I would recommend you fill in a tax return and include the income you receive as ‘sundry income.’

You could claim costs against that income such as the cost of the new printer. If you receive £500, and the new printer costs £300, then you would pay tax on the excess income of £200.

Sundry income is taxed in the year you receive it, so that would be the tax year to April 5^th 2013. That means that you must notify HM Revenue & Customs (PDF) by October 5^th 2013 that you need to fill in a tax return - and put the sundry income on that return.

If you started carrying out this kind of work on a regular basis you would be regarded by HMRC as trading and would need to register as self-employed.

The expert was Emily Coltman ACA, chief accountant at FreeAgent, an accounting software provider to freelancers, contractors and the self-employed

Editor's Note: Further Reading - Contractors' Questions: How to pay tax on a 'one-off' IT contract?