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In my long list of things to learn, finance has got to be up there. I haven\u2019t (yet) been caught out by anything in particular, it\u2019s been hard to shake a worry that I might be, because I\u2019ve accidentally overlooked something. The longer I do this, the easier this gets but I think I\u2019ll need to complete a full year of freelancing before I feel more certain I\u2019ve got everything covered. There\u2019s a pretty long list of things I’ve learnt so far, either through diligent research or by utilising my husband\u2019s knowledge. My summary so far is something like this:<\/p>\n\n\n\n
Set your day rate on real life – know what you need to live on as a minimum. While you might have to be flexible in the early days as you build experience, set boundaries about the work you\u2019ll take on based on this day rate (or however else you\u2019ve worked it out) and stick to them wherever you can. Bottom line – know your value and don\u2019t underestimate yourself (I\u2019ve already upped the day rate I set myself 3 months ago).<\/p>\n\n\n\n
Realistically probably something you don\u2019t have to worry about. You only *have* to charge tax if you\u2019re large enough to have met the threshold to become tax-registered (you can actually register to be VAT registered at any point but for me it just feels like unnecessary extra complication). At the time of writing this was if your sales (or taxable turnover \u2013 see HRMC for more details) are more than about \u00a385,000 a year (or you\u2019re going to reach that in a month \u2013 well done you!!). Thankfully, one thing I\u2019m not having to worry about right now.<\/p>\n\n\n\n
It\u2019s worth setting up a separate account. As a freelancer I\u2019m a sole trader, rather than a limited company, so don\u2019t need to have a specific business account, which is handy because they generally come at a cost. However, what I have got is a separate current account to keep my business incomings and outgoings really separate. Yes, it\u2019s another card, and another phone app but its been incredibly helpful to keep money separate. It means my \u201cprofit\u201d is able to sit separately from my day-to-day current account and isn\u2019t in danger of getting mixed up\/spent accidentally. I just generally feel more in control. Plus it makes it a lot easier to separate out tax and have quick oversight of what I\u2019ve got in and out from a business perspective, rather than hunting for it in between personal spending. Also, its interesting how different banking apps are, and this other one almost has me converted.<\/p>\n\n\n\n
You need some way of keeping track of said incoming and outgoings. There are a range of accountancy software options, from big hitters like Xero, Sage and Quickbooks to freebies like Zoho and Crunch (outlined by this handy article by Startups on accounting software options<\/a>). Some have useful functions like creating invoices which help with admin, but it\u2019s interesting to debate the cost versus return question, and the fact that it\u2019s another account to manage (and possibly another cost). At the moment, I\u2019m sticking to my Excel spreadsheet in part because I used it from the get go so I\u2019ve got confidence in it and partly to keep costs down as I get established. At the end of the day, as a one-woman band, either works provided you keep careful notes of all expenditure and income.<\/p>\n\n\n\n The other thing here is ideally have a tax account \u2013 I\u2019ve just used an easy online saver account with my current bank so minimal extra work but again its been a huge help to physically separate out that money and not have it get caught up\/spent\/missed in day-to-day life.<\/p>\n\n\n\n Allowable expenses \u2013 this is something I\u2019ve heard people with businesses talk about a million times but I\u2019d never actually tuned in enough to know the detail (not least because it involved tax and all I started to hear was white noise). But a few months in and a bit of research and I\u2019m now clearer that certain things are deemed \u201callowable expenses\u201d which means that you can take these off your profit (up to a certain amount), and then only pay tax on the remaining amount. And you can do this when self-employed, not just when you have a company. For instance, if you earn \u00a310,000 but you\u2019ve paid \u00a31,000 in travel, office supplies, insurance etc, then you only pay tax on that remaining \u00a39,000. I guess this one is a great example of why keeping good records is important so you can actually outline what expenses you\u2019ve had and prove why some are allowable. This feels a bit of a bonus find while I\u2019ve been trying not to cry over separating out big chunks of money for my upcoming tax bill.<\/p>\n\n\n\n Speaking of which, the big one. Income tax. When I started out, it was one of my biggest question marks – how on earth you handle income tax, what was the process, how does it work, when, what do I need to keep back in readiness? What I\u2019ve learnt so far is goes something like this: How to pay<\/strong> When to pay<\/strong>Expenses<\/strong><\/h2>\n\n\n\n
Income Tax<\/strong><\/h2>\n\n\n\n
What to pay<\/strong>
You can currently earn about \u00a312,500 a year (at the time of writing https:\/\/www.gov.uk\/guidance\/rates-and-thresholds-for-employers-2022-to-2023<\/a>) tax free as part of what\u2019s called your \u201cpersonal allowance.\u201d After this, you\u2019re charged at different tax rates for the amount of money you earn over this allowance. If I aim to earn a max of \u00a337,700 it\u2019s simpler to work out as you only move into the first tax bracket of paying 20% tax on anything you earn over your personal allowance.<\/p>\n\n\n\n
You need to complete a self-assessment tax form. Technically anyone can complete them but thankfully I\u2019m somehow married to an accountant.<\/p>\n\n\n\n
You need to register in October and complete an online return in Jan while paying the tax you owe, which gives me about 5 months to get my head around everything (and ensure I\u2019ve got my tax money ready to go)<\/p>\n\n\n\nIncome Tax Part 2<\/strong><\/h2>\n\n\n\n