Five things new freelancers should do on tax
It’s all well and good advising existing freelancers how to keep on top of their tax affairs, but there’s 9.6million sole trading self-employed who now need to know about setting those affairs up, writes Emily Coltman, chief accountant at accounting software firm FreeAgent.
So once you’ve done all the exciting stuff like choosing your business name and having business cards printed, it’s prudent and potentially very profitable to get your finances sorted. The following five top tips are fundamental to making that happen.
1. Register with the government
You need to tell the authorities you're starting a new business. If you're going to run your business through a limited company, that company must be registered with Companies House. If you're going to be a sole trader, you’ll need to register as self-employed with HMRC.
2. Open a separate bank account
HMRC says that as part of keeping your business records, you need to be able to identify your business's income and expenditure as distinct from any other household earnings and costs you may have, such as a spouse’s salary and your weekly family shop. By far and away the easiest way to keep your business's money separate is to open a new bank account just for your business takings and spending.
And remember, make sure you shop around the banks to get the best deal for your business. Some may offer free banking for new businesses, others may throw in extras like business insurance or cash back.
3. Track all your costs
When you're starting a new business, you will have lots of costs that all add up, such as having a new website built, printing of business cards and e-commerce subscriptions.
Make sure you keep track of all of these, and remember that there is specialist software - including cloud accounting systems - that can help you do this. If you miss costs out, your business's profit will look higher than it actually is, and because a business pays tax on its profit, that also means you’ll pay more tax than you have to.
4. Keep your out-of-pocket expenses separate
Whenever you can, make it as easy as possible for yourself to track all your business's costs by spending the business's money on business costs and your own money on personal costs. For example, use the business debit card to pay for headed paper, and your own debit card to pay for a train ticket to visit Aunt Maud in Cornwall.
But it's not always possible to follow this, for example if you’re buying a book of stamps to send business letters and the post office won't accept a card for under £10, so you pay with your own cash.
You can still include this cost as part of your business's costs, because it is for your business, but you need to record it separately from the costs paid out of the business bank.
5. Draw up a cashflow plan
Your business can't survive without a regular and sufficient supply of cash to meet its costs, including taxes and any money you want to take out of the business for your own use.
Draw up a plan and work
out roughly when you think your customers will pay you. Remember, if you are
invoicing customers after you do the work, it is a sad fact of business life
that not all of them will pay immediately. Some will pay late and some will
not pay. Build that into your cashflow plan.
Make sure you include all your costs in your plan, too. Little costs like monthly software subscriptions all mount up when added together. Don't miss any out.
Final thoughtRemember too that one of the best investments your new business can make is to find a good accountant to help you with your numbers!
19th June 2016