Because freelancers are not Mellow's employees and we don't pay taxes on their payouts, they must declare any income received via Mellow by themselves.
To carry on tax accounting in the UK for your Mellow income, you need to:
Be a tax resident
Have a tax ID number
Follow the applicable tax obligations
Tax residence
The UK taxes its residents on their worldwide income, while non-residents are taxed on their UK-source earnings only.
There are special rules for UK tax residents whose permanent home ("domicile") is abroad. Learn more in the section on the remittance basis.
In the UK, there is an official procedure to determine whether you are tax resident, known as the Statutory Residence Test (SRT). It includes tests to determine:
Residence in a foreign state (automatic overseas tests)
Residence in the UK (automatic UK tests)
Connections to the UK (sufficient ties test)
An individual is considered a tax resident in the UK if they:
Meet at least one of the automatic UK tests or the sufficient ties test
Do not meet the automatic overseas tests
IMPORTANT! If an individual is present in the UK for 183 or more days during a tax year (6 April to 5 April of the following year), they will be a UK tax resident. There is no need to consider any other tests.
A day of UK presence is considered a day in which an individual is present in the UK at midnight. The day count may be reduced due to exceptional circumstances (learn more in the RDRM13200) or increased based on the deeming rule (learn more in the RDRM11720).
Read on for more details.
Automatic overseas tests
These tests are the first to consider. If an individual meets them, there is no need to consider the subsequent parts of the SRT. Learn more in RDRM11100
You will not be a tax resident in the UK if:
You spend fewer than 16 days in the UK (46 days if you were resident in the UK for none of the three preceding tax years)
You act as a self-employed individual or as an employee overseas working full-time (an average of at least 35 hours per week) with no significant break from overseas work and spend fewer than 91 days in the UK, of which no more than 30 days are spent working
Automatic UK tests
You will be considered a tax resident in the UK if any of the following applies:
You spend 183 days or more in the UK in the tax year
You have a home in the UK for at least one period of 91 consecutive days and meet the following criteria:
At least 30 of these 91 days fall in the tax year under consideration
You have been present in your home in the UK for at least 30 days during the tax year
You have no overseas home at the time, or if you have an overseas home, you are present in it for fewer than 30 days in the tax year
You work full-time in the UK for any period of 365 days and:
All or part of that period falls in the tax year under consideration
More than 75% of the total number of days in the 365-day period when you worked more than three hours are days when you do that in the UK
At least one day which has to be both in the 365-day period and the tax year under consideration is a day on which you do more than three hours work in the UK
A home is defined as a physical object (such as a rented apartment of an owned house) that must be suitable for use as a dwelling and must be used by the individual as one. If an individual has more than one property in the UK that fits the definition of a "home", each such property and the length of stay in it is to be considered separately. Learn more in RDRM11300
Sufficient ties test
An individual can also be a tax resident under the sufficient ties test if they spend a number of days in the UK and have the following additional connections ("ties") to the UK:
Family tie
Accommodation tie
Work tie
90-day tie
Country tie (only considered if an individual was UK resident in one or more of the three preceding tax years)
The more ties an individual has to the UK, the fewer days they can spend here before they become UK resident.
A. An individual was UK resident in one or more of the three preceding tax years
Days spent in the UK | Minimum UK ties needed |
16 — 45 | 4 |
46 — 90 | 3 |
91 — 120 | 2 |
over 120 | 1 |
B. An individual was not UK resident in any of the three preceding tax years
Days spent in the UK | Minimum UK ties needed |
46 — 90 | 4 |
91 — 120 | 3 |
over 120 | 2 |
Each tie has its own conditions or criteria that you must meet. Learn more in RDRM11500
Split year treatment
When entering/leaving the UK with potential implications for your residence status, you may qualify for split year treatment. In this case, the tax year will be split into two parts: a UK part for which you will be charged to UK tax as a UK resident, and an overseas part for which you will be treated as a non-UK resident. Split year treatment applies only if you meet all the conditions of one of the eight cases of split year treatment. Learn more in RDRM12000
Temporary non-residence
The UK also has temporary non-residence rules, meaning that an individual returning to the UK after a period of temporary non-residence may be charged to tax on income and gains they received abroad or remitted to the UK (transfers of funds to payment methods provided by UK financial institutions, cash taken into the UK, and payment for goods/services in the UK). Learn more in RDRM12600
Useful links: online questionnaire to check your UK residence status; SRT guidance; RDRM12900 manual containing details on documents to confirm residence
The UK has double taxation agreements with a number of countries (full list), the provisions of which may override the applicable tax residence rules and other provisions of national legislation.
Taxpayer ID number
A National Insurance number (NIN) is a unique identification code used in the UK in the administration of social security contributions, for tax purposes, and to access government services. The number consists of nine characters in a format that includes two letters, six digits, and a final letter (for example, QQ123456C).
NIN is issued to UK citizens automatically at the age of 16. Also, if you have a biometric residence permit (BRP), you might have a NIN already — it will be printed on the back of your BRP.
To get your NIN, you need to apply online (to access the service, your location must be identified as within the UK) or through an office of Jobcentre Plus, which is a part of the Department for Work and Pensions (DWP).
Freelancers must provide their ID, as well as documents confirming grounds for legal stay and activity in the UK (passport, visa / residence permit); an interview may also be required. After you have provided all the documents, getting a NIN may take up to four weeks. You can check your NIN here.
A Unique Taxpayer Reference (UTR) number, or simply a tax reference, is assigned by His Majesty's Revenue and Customs (HMRC) and is used to identify individuals and legal entities in the tax system. It is mandatory for those earning income independently. The number consists of ten digits and can only be obtained if you register online for Self Assessment or set up a business. If registration is successful, you will get your UTR number by post from HRMC no longer than 15 days after you register (21 days if you live overseas). You can check your UTR number here.
VAT registration number is issued by HMRC after you register for VAT. The number consists of nine digits, sometimes with the prefix GB (e.g., GB123456789). You need to register for VAT if you carry out designated activities. The registration takes place online. You can check your VAT registration number here.
Taxes and contributions payable by freelancers
There are different forms of doing business in the UK, but freelancers can receive income via Mellow only if they register as sole traders.
IMPORTANT! Mellow does not have the option to choose a tax status for freelancers based in the UK, but you can fill in your tax ID in your account.
Taxpayers can register on the HMRC portal to interact with tax authorities and submit tax returns online. There are two types of accounts available: a Personal Tax Account (PTA) and a Business Tax Account (BTA). To access them, you will need a Government Gateway user ID. The HRMC app is also available.
Read on for more details.
Sole trader
A sole trader engages in entrepreneurial activities, having sole ownership of a business and bearing the corresponding risks.
You must register as a sole trader and pay taxes if your income in a tax year is over GBP 1,000. Registering as a sole trader is an option if you provide services or sell goods in your own name. This can be done by registering for Self Assessment and making Class 2 National Insurance payments online or by completing form CWF1 and sending it to HMRC by post. After your application is considered, you will be assigned a UTR number after a period of time indicated above. You must register before 5 October of the year following the year when you started operating as a sole trader.
If you decide to employ staff, there are steps that you need to follow.
When you have stopped trading as a sole trader, you must inform HRMC. A notification to HRMC must also be sent by sole traders who are not required to file a tax return.
Key aspects
For the purposes of submitting a tax return, a tax year in the UK is from 6 April to 5 April of the following year.
A sole trader can trade under their own name or choose another name (business name) by filling out form CWF1, which is used for registration as a sole trader (there are restrictions that apply to a potential business name).
IMPORTANT! To sign up for Mellow and obtain all relevant documents, you must use your name and surname. You cannot use any other business name that you registered for your sole trader activities.
Licenses/permits: Sole traders engaged in certain types of activities need a license/permit.
Intellectual property protection: A sole trader can patent an invention or register a trade mark.
Business insurance may be obligatory depending on the nature of your trade as a sole trader and whether you employ staff. Types of business insurance include:
You can find an authorized insurer here.
Accounting and reporting. Sole traders must always keep records of their income and expenses. All types of invoices and receipts, as well as other financial documents, must be retained for at least five years. Learn more about keeping records
Sole traders are not eligible for different tax regimes, but they can choose one of the following accounting approaches:
Cash basis: This is the default method of accounting starting from the 2024–2025 tax year. Under this approach, you can account for your income and expenses when you actually receive payment or actually pay for an expense. Cash basis accounting is not available for certain types of businesses and businesses that have a turnover of more than GBP 150,000. If your turnover as a sole trader grows during the tax year, you can stay in the cash basis scheme up to a total business turnover of GBP 300,000 per year. After that, you will need to use traditional accounting starting from your next tax year (learn more about cash basis).
Traditional accounting / accruals basis: In line with this approach, you must report your actual income and expenses when they are earned or incurred (for example, when you raise an invoice for your client), regardless of when the funds were actually paid. The method has no restrictions. Guidance on calculation.
The status of a sole trader requires you to pay the following taxes and contributions:
Income tax is payable at a progressive rate:
Income, £ | Tax rate, % |
up to 12,570 | 0% |
12,571 – 50,270 | 20% |
50,271 – 125,140 | 40% |
over 125,140 | 45% |
You can deduct documented expenses related to your trade, with simplified expenses at flat rates available in certain cases. You can also claim a loss relief. There are certain allowances available:
Personal Allowance: An amount of income of GBP 12,570 you can get before you have to pay tax. It goes down by GBP 1 for every GBP 2 of income above the GBP 100,000 limit. Learn more about tax rates and allowances
Trading Allowance: An amount of up to GBP 1,000 per tax year which you can use against your taxable income. If you use this allowance, you may not deduct any expenses. Learn more about the allowance
Reporting requires filing a Self Assessment tax return either online or by filling out form SA100, as well as additional pages in form SA103S (short) or SA103F (full). The choice of the form depends on the nature of business and annual turnover: if turnover exceeds GBP 90,000 per year, you must use form SA103F (full) (instruction on how to complete the tax return). Online tax returns must be filed before January 31 of the year following the tax year, while filing by post must be completed before October 31 (learn more about filing tax returns). For example, for a tax year that ends on April 5, 2025, a paper tax return must be submitted before October 31, 2025, and an online return, before January 31, 2026. If you are up to three months late filing, there is a penalty of GBP 100, the amount can be increased if there is a longer delay (learn more about paying the penalty). You can reduce your penalty if you provide a reasonable excuse.
The tax is paid online using advance payments ("payments on account"). The first payment is due before January 31, and the second, before July 31. The final payment ("balancing payment") must be made before January 31 of the year following the tax year based on the tax return you submitted. You can contact HMRC to set up a "Time to Pay" arrangement to pay your tax bill in instalments.
Class 2 National Insurance contributions are treated as having been paid to protect your National Insurance record if your income is GBP 6,725 or more a year. If your income is less than GBP 6,725, you can choose to pay voluntary contributions. If your income is more than GBP 12,570 a year, you must pay Class 4 contributions.
Contributions are calculated based on your gross income after deducting your expenses and carry a rate of 6% if your income is between GBP 12,570 and GBP 50,270, and a rate of 2% if your income is anything above GBP 50,270 (for the 2024–2025 tax year). Total contributions must be indicated in your form SA100 Self Assessment tax return. No separate reporting is required.
These contributions are paid in the same way as the income tax.
Value Added Tax (VAT) is payable if your annual turnover exceeds the threshold of GBP 90,000, or on a voluntary basis. Learn more about VAT
To pay VAT, you must register for VAT either online or by sending form VAT1 by post. After you register, you will be assigned a VAT registration number. Notes to help with applying for VAT registration
The standard tax rate is 20% (for certain goods/services, reduced rates of 5% and 0% apply). There are different regimes for calculating VAT (learn more). You must keep specific records for VAT purposes.
Reporting requires filing a VAT Return online using form VAT100 (filling-out instructions) through software that is compatible with Making Tax Digital. Filing a paper VAT Return is only allowed under exceptional circumstances. The accounting period is three months. By default, the deadline for VAT Return's submission is one month and seven days following the end of the accounting period.
The tax must be paid online by the same deadline. You can use your VAT online account to check what is due.
Remittance basis
By default, income of UK tax residents is taxed on the arising basis, which means that you pay UK tax on your worldwide income. However, there are special rules for UK tax residents whose permanent home ("domicile") is abroad (learn more). Non-UK domiciled residents have the right to use the remittance basis, which under certain conditions allows them not to pay UK tax on foreign income not taken ("remitted") to, or spent in, the UK.
You can claim the remittance basis once a year when filing your SA100 Self Assessment tax return. Guidance on completing your tax return when paying tax on the remittance basis
Key aspects
Foreign income is only subject to UK tax if it is remitted to, or spent in, the UK.
When using the remittance basis, you will lose your right to allowances, except for cases when your foreign income remitted to the UK is below GBP 2,000 per year.
When staying in the UK for a certain period of time, you are required to pay a Remittance Basis Charge (RBC):
GBP 30,000 if you have been tax resident in the UK for at least seven of the previous nine tax years
GBP 60,000 if you have been tax resident in the UK for at least 12 of the previous 14 tax years
You must keep records of the funds you have remitted to the UK.
From April 6, 2025, the remittance basis of taxation will no longer be available for non-UK domiciled residents. It will be replaced by a new four-year foreign income and gains (FIG) regime. Learn more in the official statement
Additional details
Tax assistance:
Income received through Mellow is declared using certificates and invoices, and in accordance with the offer agreement.
If you have any questions, get in touch via the chat in your Mellow account or email us at [email protected].