Yes you! I’m speaking to the large and growing army of freelance contractors, the self-employed homeworkers, the invoice-raisers and receipt-savers amongst you.
When you take the brave – or in some cases enforced – decision to become self-employed one of the many new challenges you will face is becoming a lot more efficient, knowledgeable, and savvy when dealing with money.
That is, your businesses money (income & costs), you and your employee’s money (salary, dividends & expenses), and the taxman’s money (income tax, and possibly NI contributions and VAT). My experiences are limited and specific to the type of work I do and the clients I work with, but are typical (I hope) of a lot of sole-traders, freelancers and micro companies.
Over 1/2 milliion new companies were created in the UK in 2014, more than 1 born every minute!
Firstly, I would recommend finding someone who can help with your books. This person could be a friend with some experience, but ideally a qualified bookkeeper or accountant, depending on your budget and how complicated your affairs are. I say ‘help’ advisedly, because it should not simply be a matter of handing over all responsibilities. You must stay interested and involved. You should be able to trust their skill and competency, but remember that they are acting as your agent and adviser, and if things go wrong (your end or theirs) ignorance is no defence.
Top 5 tips
- Get your house in order. Whether you do your own tax self-assessment and company accounts or rely on someone else, you must keep all relevant paperwork. Keep and file all receipts, including hard-copies of electronic invoices, receipts and bank statements. You may be told that we live in paperless world, well we don’t, despite HMRC proposals!
- Have a plan. Although things will change, it is better to put a process in place early. For example having bank accounts to separate ‘personal’ and ‘business’ money, create spreadsheets or use some accounting software to record transactions.
- Little and often. It’s much better to keep on top of things than panic at the end of the tax year, or when payments are due. I recommend regular house-keeping, weekly at least, to make sure that all your files and spreadsheets are up to date. Keep all HMRC correspondence, and copies of anything you send out.
- Calendar of events. HMRC will never be your best friend, but if you do everything that he/she demands then you’ll get along just fine! Whether you are outsourcing everything or not, be aware of the tax year timetable, corporate tax and filing dates (limited companies) and your monthly RTI submissions (required by law whether you PAYE or not, even if you are the only employee and pay yourself below the NI threshold).
- Technology. If like me you are happy working with a spreadsheet, Excel may be as technical as it needs to be, as long as you make regular back-ups of your valuable data, ideally on some physical device rather than trust the cloud or the software package. Whatever your solution, data should be extractable electronically and printable, hard-copy monthly summaries are useful to file with other paperwork as above (1).
There are some useful guides from Contractors and Freelancers Everywhere, accounting and financial as well as more general info.
Accounting Software for Non-accountants
Here is a very quick and dirty review of some of the software that is out there, thanks almost entirely to two independent accountants/bookkeepers that I know, and one biased recruitment consultant!
|Free Agent||Easy to use, jargon-free, web-based (if you trust the cloud with your data of course).Good with project-based work and compatible with HMRC online filing.||Not free(!)£25/30 per month|
|VT Software||Looks like a good set of starter wheels
‘User friendly and flexible…user interface is simple and intuitive’ (MB)
|Free cash book. Full suite £200 year 1|
|Quickbooks||The biggest in the USA, 2nd in the UK||Pricing starts from <£10 per month|
|Cashflow Manager||Record and analyse money in and out by category (computerized ‘cash book’), reconcile bank accounts, VAT returns and reports etc.‘Great package…very easy to use’ (SB)||Cost: iro £200 one-off payment|
|Sage One/Instant||Designed for sole traders and small businesses, with a bit more knowledge of accounting, double-entry bookkeeping etc
‘Very Accurate…reporting not all that easy, and not very visual’ (SB)
(Ed. shouldn’t they all be accurate!)
A bit of a marmite product‘The market leader…which I dislike’ (MB)
|Starts cheap (<£10 per month) but can build-up.Scalable up to the biggest company that you can dream of…|
I think the take-away for me here is that there are a lot of products in the market, but knowing what you need and how well the product meets your needs, and at what cost, is a real challenge for the non-accountants amongst us. Who has time to review, test (and I mean properly play), and ideally use different products in anger before selecting the right one for them? Again, I think it’s back to your friendly financial adviser.
And last, but not least, what of the recent budget announcement, wither the brave new world of Digital Tax Accounts and the phasing out of tax returns? Here is a useful government promotional document, Call me cynical, but I’m not sure how soon this will really happen. So, you will need to learn more about money, but do use the experts…it’s what they are there for!
Have you got any advice, tips or potential pitfalls to avoid for fellow travellers and financial novices?
(c) 2015 Antony Lawrence CBA Ltd.