Freelancers: A Guide to Managing Finance

By on Jan 18, 2013 in Business | 7 comments

 

FreelancersThe following is a guest post by Laura Moulden on behalf of Nixon Williams, a firm of contractor accountants offering comprehensive accountancy services to businesses throughout the UK. Click here to find out more.

Fourteen percent of the UK’s workforce is now made up of the self-employed, with around one in four of these having made the decision to go it alone after being made redundant from a full-time job. One of the most challenging aspects of setting up as a sole trader is managing your own income.

The transition from a monthly salary to sporadic payments can be tough. Follow these top tips to keep your money coming in as steadily as possible.

Track Your Time

Keeping abreast of your schedule is a really important way of ensuring that you are maximizing your time.  Free apps, such as TeuxDeux for the iPhone are really useful for aiding this process.

A common freelancer mistake is not keeping track of how long each task typically takes to complete. Just keeping up with this simple practice can give a really good indication of where you’re making and losing money. It can also tell you when and where you may need to consider making revisions to your rates.

Recording the time spent on each job can also flag up where the client may be costing you money. Sometimes clients will change their mind about what they want halfway through a project, or expect things from the freelancer that are not within the initial agreement. In this case, it’s easy to just go along with what the client wants to avoid confrontation, but it’s a good idea to at least keep track of the costs involved.  Over time, this may allow you to identify where contingencies should be built into your rates and may even highlight where you need to make revisions to your sense of leniency!

Invoice Regularly

Don’t let invoices stack up. The likelihood is that once you’ve invoiced for a job, the client will take as long as they can to pay up. This tends to be standard business practice.Try to routinely generate invoices as you complete pieces of work.  This will help prevent a back log, and maintain a fluid cash flow.  It also means that when your own business expenses need to be paid, you won’t get caught short.

Keep Tabs on Tax

The amount of money recovered by HMRC from investigations into suspected underpayment of tax increased five-fold in 2012, reaching more than £1million – so freelancers can’t afford to be caught out!

One of the most elementary mistakes is losing track of tax throughout the year. It’s easy to do. But when the annual tax return comes around there’s nothing more daunting than facing a large bill and realizing you haven’t made the provisions to cover it.

Many freelancers will choose to consult an accountant to double-check that everything is completed correctly. Though there’s a cost associated with this, it will usually end up saving time and money in the long run.

Tip: it’s also a good idea to make the minimum National Insurance contributions (currently £2.65 per week) as you go along.

Get VAT Registered

Unless you are turning over more than £70,000 per year, you don’t need to be VAT registered. However, the advantage of being registered is that you become eligible to reclaim VAT on your business’ purchases, and with VAT at 20% this could be a lucrative move.

The downside is that anybody who pays for your services will have to pay VAT on top of their invoice too, but if you’re dealing with a lot of fairly decent-sized companies, the likelihood is that they will expect this anyway.

Becoming VAT registered does take consideration and can bring some extra admin, but it’s always worth checking out the available options to help you find the best solution for your business.

Let us know what you think – what other tips can you offer to the UK’s growing number of sole traders?


    7 Comments

  1. Great tips. I would add to do your tax return in April! I feel so much lighter when taking that out of the way for the rest of the year.

    Pauline

    January 18, 2013

    • Getting your tax return early is definitely the way to go. I try to get it done as soon as I possibly can every year.

      Deacon

      January 18, 2013

  2. If I was a freelancer full-time it would be the taxes that would get me flustered so good organization skills and a good accountant is always nice unless one knows what they are doing. Great tips mate.

    Canadianbudgetbinder

    January 18, 2013

    • It would get me flustered too, especially when you don’t know how much you will make in a year. I guess that is where the accountant might come in handy :)

      Deacon

      January 18, 2013

  3. Great tips. Running our own business and former freelancer I can attest to the importance of taxes. We pull money out of our earnings regularly so we can be prepared the lovely quarterly estimated taxes.

    John S @ Frugal Rules

    January 18, 2013

    • That is good to hear that you got a system for paying taxes quarterly. I am sure that it is not fun to write the checks but it must be a weight off your shoulders to not have to worry about it.

      Deacon

      January 18, 2013

  4. “Don’t let invoices stack up. The likelihood is that once you’ve invoiced for a job, the client will take as long as they can to pay up. This tends to be standard business practice.” Definitely true…at least in my experience.

    DC @ Young Adult Money

    January 21, 2013

Post a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>