Paying tax as an online ESL teacher is a new experience for those who have no freelance experience other than online teaching.
So here is all the information UK teachers need to know about paying tax whilst earning an online ESL wage.
Pay As You Earn (PAYE)
Within the UK, if your income isn't taxed at source by your employer, then it must be declared via completing a tax return.
Being employed by a company in the UK generally equates to being paid through the pay as you earn (PAYE) scheme. This means that your employer is responsible for handling your tax and declaration of earnings.
How To Declare Your Earnings For Tax
You must register with HMRC as self-employed and complete a self-assessment tax return.
The UK Tax Year
This runs from 6th April – 5th April of the following year.
So for example – 6th April 2018 to 5th April 2019 is the current tax year at the time of writing this article.
So, when should I register as an online teacher?
It is requested that you register before the October after the end of the tax year. So to make it simple:
You start teaching online in April 2018, then you should register with HMRC by October 2019.
When should I submit the tax form after registering?
Your self-assessment form deadline is the following January. So…
…start teaching in April 2018, then you get your form submitted by January 2020.
Registering with HMRC
After registering, HMRC will give you all the information you need to log-in to your account. You will also receive a Unique Taxpayer Reference (UTR).
You could then decide to contact and register an accountant to complete your return for you…but to be honest, it's pretty straightforward…as long as you keep good records!
But an accountant is useful for ascertaining what to claim as a tax deductible expense as an online teacher.
Keeping Records and Tax Deductible Expenses
I log every bit of online ESL income into a google sheets spreadsheet. I also log the expenses as well.
Don't record it in Chinese Yuan or US Dollars, regardless of how you have gotten paid. Convert it and write it all down in pounds. But it might be a good idea to also keep a note of how much it was before the currency conversion.
What Counts as Tax Deductible Expenses in Online Teaching?
Things that are 100% related to the job can be claimed as an expense. For example, essential teaching items such as headsets, props and teaching backgrounds can be claimed against your income. So make sure to log how much you paid and keep your receipts!
You can also claim things such as your internet cost…but only partially as it although it is essential to the job, it is most likely used for personal use as well (not 100% related to the job, as I mentioned previously).
This is where an accountant comes in handy as they can tell you from your records, logs and sheets what you can claim for.
How Much Tax Will I Have To Pay?
To work out how much you'll owe, follow this formula:
Total income – deductible expense = Profit
Now if your profit is below the personal allowance of £11,500 then you won't have to pay a penny. If the profit is above this then you will pay a basic rate of 20%.
20% is the basic rate bracket of earnings under £46,350.
Online Teaching Pay Tax Example
Say you work 15 hours a week teaching, earning £15 per hour.
Let's pretend you pay £20 a month for props.
20 x 12 = 400
11,700 – 400 = 11,300
This is below personal allowance so you won't pay any tax.
However, let's say you didn't have any deductible expenses. So therefore you would pay tax on any income over the £11,500 allowance.
11,700 – 11,500 = 200
So in this case you would pay tax on £200
20% of £200 =
And this is how much tax you would pay as an online teacher within this example.
National Insurance Contributions
These contributions are due when your income exceeds £6,205 within the year. These are voluntary payments but your contribution amounts dictate whether you eventually receive your state pension…so it's kind of voluntary but with heavy arm-twist.
And that's all you need to know about paying tax in the UK as an online ESL teacher.
I've recently started using Freshbooks accounting software to help me keep track of my finances…and it's made my life so much easier. Here's a free trial if you want to check it out:
(Affiliate link, of course)
Check out how much you can earn teaching for SayABC below whilst keeping all this new tax information in mind: