The 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!
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?