What are my responsibilities?

Unlike the nine-to-fivers, money you earn as a self-employed person (or freelancer) may not have any deductions taken from it. So don't be tempted to blow what looks like an inflated pay cheque because you are still liable for tax and National Insurance contributions, possibly also business rates (and a pension, should you choose to invest for the future).

Some companies will want to add you to their payroll, which means they'll take off tax and National Insurance like they would for permanent staff. This can have some advantages, e.g. you may get some holiday pay thrown in.

Aaron tells us what it's like being self-employed and gives some tips on being a freelancer.

Every year you need to fill out a Self Assessment form and return it to HM Revenue & Customs (HMRC). If you are completing the form online, the deadline is 31 January following the tax year, but if you want to complete a paper copy you need to get it in by 31 October. You'll also need to pay your tax bill by 31 January - the sooner you tackle your return, the sooner you'll know what the damage is - and you may be asked to make payments in July too.

Hang onto all paperwork, including invoices, receipts and bank statements, as HMRC may ask to see these. Filing is preferable to stuffing them down the sofa.

If you've got this far and you're freaking out, consider hiring a tax accountant. Not only can they help to manage your financial affairs, they could also keep your tax liability to a minimum (for a fee, but it's tax deductible if it's for dealing with your self-employment).

So I still have to pay tax?

If you've quit your real job for a life of leisure self employment, you need to inform your local tax office. Once you've registered, which you must do right away if you are going to avoid a penalty, they will normally send you a tax return every year (in which you detail your income and expenditure).

Effectively, this means you won't be asked to pay tax for 12 months, but that demand will arrive one day so be sure you have the money available. You may be asked to make higher payments in your first year, as some of your tax bill is paid in advance.

How much tax will I owe?

You will pay the same rate of income tax as someone who is employed. You'll also have to make National Insurance contributions, but these will be classed differently to an employed person. You should receive a quarterly bill for NI, or you can arrange to pay by Direct Debit. If you're earning below the small earnings exception limit, you may want to apply for an Exemption Certificate, although this could affect your entitlement to some benefits.

You'll also pay some more NI as a percentage of what you earn. This is worked out as part of your tax return.

Can I bring down my bill?

The good news is that you are entitled to deduct certain expenditure from your income - basically the stuff that relates to your business. You won't get the money back, you don't have to pay tax on it. For example, a self-employed film critic might claim for cinema tickets and movie review magazines, plus the cost of setting up a website.

However, that's only for gross income - if you're paid through a company's payroll (i.e. with tax and NI already taken off) you can't claim expenses against those earnings.

You need receipts for all these things, of course, so start collecting/itemising everything you spend. What you can claim depends on your line of work (although new undies would definitely be pushing it), while some items may only be allowable as a percentage or set allowance. Once again, this is where a tax advisor can come in handy.

Do I have to charge VAT (Value Added Tax)?

If you earn more than the current VAT threshold - currently £68,000 - before expenses in any 12-month period, you are legally required to become VAT registered and charge VAT on anything you earn. You can also choose to register for VAT even if you're not earning more than the threshold, but this is subject to certain conditions.

Do I have to pay business rates?

This can apply to anyone who uses a property for business purposes. Much depends on the kind of work you do and whether you have business contacts or clients visiting, and can affect your insurance, too. For example, jotting notes at the kitchen table isn't likely to cost you a penny, but if you're renting a premises, or your entire home has been transformed into a tie-dye factory, then be prepared to pay.