I'm a self employed UK resident. I filled out the w-9 form and was expecting this to stop Upwork taking Tax from me.
But I'm still being charged tax on top of the service fee. Is this right?
If so, are these earnings tax exempt from my self assement tax return?
Value Added Tax, or VAT, is a consumption tax assessed on Upwork’s supply of digital services. Upwork charges VAT to freelancers and agencies in certain countries unless specific exemption requirements are met. Upwork is required to collect this tax and pay it to the appropriate government agency.
VAT is assessed on digital services provided by Upwork (i.e. service fees, membership fees, and connect purchases), not on services freelancers and agencies provide their clients. VAT rates are calculated according to the local rate of the freelancer’s country of residence.
George C wrote:
Thanks for your reply Christine.
They've been taking a 20% service charge plus what seems to be a 10% Tax. So 30% total deduction from my pay rate? Is that right?
No, that's not right. You pay 20% VAT on Upwork's service charge only - not on the project total - just like you do on nearly all goods and services that you buy in the UK. The difference is that unlike when you buy something in the UK, it's not included in the price, but charged separately. So if you do a project for $100, the breakdown is: 20% service charge to Upwork = $20. VAT on the $20 service charge = $4 (20% of 20%). You end up with $76, which you need to report to HMRC as income tax if your total yearly earnings are above the threshold.
It's not easy to figure this stuff out for yourself, so it would be best to hire an accountant until you get the hang of it. And if I may say so, your $37 hourly rate - living in Bristol as you and I both do - is too low. When deciding on a freelance rate, you should think about how much money you'd be happy to accept if you were doing a normal PAYE job, then charge at least double that. Otherwise, freelancing is just not worth it. Your expenses (such as Upwork fees, software etc.) aren't covered, there are no benefits or paid holidays, and you'll have to spend a fair amount of time doing unbillable tasks (such as bookkeeping, admin, marketing) - all of these things need to be considered, not just the time that you actually spend working for clients.