Making a living as a freelancer is a dream for many, but for those that have taken the leap, it has some aspects that might make you wish you’d just taken that office job. We know you’d rather be spending your time on the fun stuff, the work you enjoy doing and that makes you money, but it’s important to take care of your finances, so here is our advice for all new freelancers:
- Forming A Limited Company
First things first, depending on what you’re earning it might be a good idea to start working under your own limited company. To many this might seem like overkill for the level of work they’re doing, but there are plenty of good reasons to form a limited company. If you’re bringing in around £20,000 a year, with £2,000 annual expenses, you may find having your own accountant pays for itself.
This is simultaneously the most enjoyable and irritating part of doing your accounts. While it’s great to recoup some of your costs, there are also loads of rules about what is and isn’t acceptable. The basic rule is that anything you claim as an expense must be used ‘wholly and exclusively’ for your business, with no exceptions. It really is just all about common sense. If it’s 100% essential and you’re not using it for anything outside your business, you should be able to claim for it. Here’s a rundown of a few things you can claim for (again – only if they’re for business use!):
- Stationery – This includes envelopes, printing costs, pens, photocopying and similar costs
- Postage costs
- Telephone calls – You can only claim for business calls of course so you’ll need to to split your bill up into personal and business calls to work out how much you can claim
- Office hire
- Commissions paid to agencies etc.
- Solicitors’ fees
- Computer equipment
- Wages – You may need some assistance, beware though – the employment status of people who work for you is complex, you may need to set up a PAYE scheme. You should always seek specialist advice about this.
- Keeping Your Papers In Order
Whether you have an accountant or are taking on the books yourself, it’s incredibly important to be organised, especially if you’re planning on making expense claims. Do you ever empty your wallet of two weeks of receipts and have no idea what half of them were for? Imagine this, but over the space of a year, and you’ll realise why prompt and proper filing is your friend.
The first rule is to keep everything. Receipts, contracts, invoices and anything else that might be useful. While it’s possible all of this will never be needed again, you want to be prepared in case HMRC have any probing questions about your accounts after you submit them.
Bear in mind, also, that you can’t just throw away records once the financial year is over – HMRC can ask about information up to six years after it was submitted. We’d always recommend making electronic backups, as receipts tend to fade over time.
Make sure everything has a date on it and get it organised in chronological order, and preferable separated by type. Stay organised and you’ll be saving yourself a headache later on.
- Self Assessments
This is the part where you actually have to sit down and work everything out. As a self-employed freelancer you won’t be paying your tax through a PAYE scheme (as a normal employee would), so every year you must complete a Self Assessment to tell HMRC about your earnings, and calculate how much tax you owe.
If you’ve been good with your record-keeping this shouldn’t be too difficult. If you haven’t, you may find January to be a fairly miserable month.
Make sure you get registered for your Self Assessment as soon as you can – registration can take a few weeks, so it’s best not to leave it to the last minute. Failure to register or submit your Self Assessment will lead to fines and penalties. Get the jump on your accounting and you’ll feel much better for it.