Those who work for themselves know that getting their finances organised is harder than it looks. There are a whole range of things that will need to be considered, including taxation issues such asIR35, national insurance and income tax. As the taxman can ask to view a freelancer’s accounts at any time, it is a good idea to make sure that everything is in place.
It is essential to check with the tax office about the expenses that can be claimed when becoming a freelancer. Consider how much money needs to be earned so that savings can be made in order to cover eventualities such as illness and holidays. Investigate in advance how much competitors charge for similar services and work out prices on the basis of the information collected and an analysis of personal circumstances. Remember, however, to leave enough latitude to be prepared to negotiate with customers a little.
Ensure that everything that is needed to complete the work is in place. Simple items such as a desk, computer and broadband connection may all be important for those who need a workspace at home. The freelancer should always choose to work in a field that he or she has worked in previously, as clients will be more inclined to take on a freelancer who has experience in their chosen field. This also means that the finances will not need to cover any training costs.
A business bank account could be used so that work finances can be kept separate from personal finances; however, do not get drawn in by the banks, as they will be keen to offer a whole range of services that they can charge for. Only take the services that will be used and do not be tempted to pay out for anything that appears to be superfluous. It should be noted that there is no legal requirement for a sole trader to have a business bank account; however, a separate account for tax and national insurance is a good idea so that money can be put aside as it is earned.
Self-assessment is the method used for paying income tax for those who are working freelance. It is fairly easy to keep an eye on income and expenditure, and it is a good idea to keep track of this each week or month. Putting away around 30% of earnings to cover tax should be enough to meet the bill at the end of the financial year. An accountant could help here, but this can be expensive and it is also unnecessary for someone who is able to get a handle on his or her finances fairly quickly.
In order to make freelancing work, it is important for the freelancer to live within their means. Putting aside money for savings is important. Freelancers need to think about future factors, such as retirement, as well as about the present. It is a good idea to avoid dipping into savings unnecessarily, so factor in that some months may not bring in as much money as others. It can be tempting to splurge on a few treats when earnings have been high, but this is not always a good idea.