Managing your accounts as a freelancer
Whether you freelance as a sole trader or through your own limited company, you don't want to spend hours doing bookkeeping every week.
On the other hand, you do want to make sure that your records meet any tax or legal requirements and enable you to claim tax relief on all costs to which you are entitled!
Despite these ‘dos and don’ts,’ there is no prescribed format for freelancer accounting records, writes chartered accountant Graham Jenner of Jenner & Co, and fortunately, there are plenty of products out there which can help.
This introductory article on managing your accounts as a freelancer is aimed primarily at sole trader freelancers but much of it is equally applicable to limited company freelancers.
Sole trader? You can bank on your own bank account to stand you in good stead
Self-employed freelancers sometimes don’t bother with a separate business bank account, but it is advisable to do so.
As a sole trader, a business bank account enables you to keep a better track on how the business is doing and on its cashflow, than if you mix business transactions with personal ones.
Please note -- limited company freelancers should definitely open a separate business bank account and this account should be in the company’s name.
How to please your accountant if you’re self-employed
In an ideal world, you would have all the income paid into the business account (easily achieved by giving clients the bank account details), as well as paying all costs of the business out of that bank account.
If you could do that and aren’t VAT-registered, then you could simply download the bank transactions into an Excel file, add a bit of narrative for any transactions where it isn’t obvious what they are for, and you have something that your accountant could prepare the accounts from.
You would need to let your accountant know about any income or costs outstanding at the year-end but that could be as simple as including transactions beyond the year-end, marking those that relate back to the year in question.
For a non-VAT registered freelancer with one or two clients and typical levels of expenses, we would be quite happy being presented with a nice simple set of records like that!
It is (of course) often not that simple!
Unfortunately, from a practical point of view, it is unlikely to be that easy.
There are going to be occasions where it is just easier to pay for something by cash, or on your personal debit or credit card. (N.B Often this happens to freelancers when they don’t have the business debit or credit card on their person, or they pay from their personal account because the business account doesn’t have enough funds).
Fortunately, a simple spreadsheet of expenses paid personally, to accompany the above would be satisfactory.
Finally, a top tip: re-expense yourself regularly
Lastly, before I go onto writing my follow-up article for FreelanceUK on managing your accounts as a freelancer (which will look more closely at VAT and how accounting software can help freelancers), remember this top tip to avoid being out-of-pocket and irregular with your accounting:
Reimburse yourself from the business bank account periodically for expenses you have paid personally.
Doing this helps to give you (the freelancer or self-employed owner) a better feel for the level of costs that your business is incurring. Be aware that if you’re your own boss -- it is very easy to incur a significant amount of business costs paid personally, without appreciating how much has accumulated!