I’ve got 99 problems but being a freelancer ain’t one…if only. Freelancing can be hugely rewarding but there are some things to consider when going at it alone. Kozzii has compiled our top tips for survival when working as Self-employed. Whether you are a seasoned pro or just starting out, we could all do with a little help and advice when it comes to working for ourselves. From getting paid to keeping the tax man from the door we’ll get you up running in no time…
Are you actually self-employed?
If you have been asked to work for somebody, say as a dresser or wardrobe assistant on a big production, it might be worth checking if you actually are classed as ‘self-employed’ for that role. More importantly, will self-employment benefit you in the long run. Some employers get around having to pay a contribution to your NI and honoring workers rights by making you work for them as self-employed. HMRC are starting to clamp down on this but its still not unusual. For many, this works out fine, especially within creative industries where you might be working for short periods of time or on a project-by-project basis. Still, it’s good to read up on the legal definitions of self-employment and be able to assess if you are being asked to work in a way that is not to your benefit. The government have some advice some advice here.
If you are going to class yourself as self-employed then you will need to register with HMRC asap and file a tax return every year (Paper deadline for self-assessment is October, Online deadline end of January).
Tax, one of the two certainties in life (the other is death), and there’s no escaping it. Getting your tax affairs in order is often one of the biggest stumbling blocks for many sole-traders, but it is one of the most important things to get right if you don’t want to go full Karen Millen.
If you are freelancing you will often be paid a gross sum and it is down to you to make the deductions for Tax and NI contributions via a tax return. This often leads to Freelancers thinking they are richer than they are because they haven’t deducted their tax obligations.
It is wise to try to estimate the tax and NI (Class 2 and 4) you are likely to owe. Deduct this amount from your gross pay, and then put the money in a high-interest account until it is time to pay your bill.
HMRC has a useful ready reckoner tool so you can work out the money you might owe and prepare in advance. The tool doesn’t take into account any expenses you might want to claim for, which brings us on to our next point.
Some would say one of the perks of filling in a tax return every year is the allowable expenses section. However, what you can actually claim as an expense can be a minefield. It is worth doing some research on the net or talking to an accountant about which expenses might class as ‘allowable’ within your line of work. But, the general thing to remember is that if you have spent money on your business then that expenditure may be an expense you could claim against your tax – effectively lowering your tax bill.
That means keeping all your receipts. Gone are the days when you had to rely on a trusty shoe box to store every receipt, there are now tons of apps designed to help the self-employed capture a digital copy of their receipts. The advantage is that most apps are able to categorise and total expenses on your behalf. A couple of applications we love are – Expensify (which has a small cost) and Wave with powerful free features (plus premium features). We particularly like Wave for its invoicing service, which brings us nicely on to our next topic…
Its simple, if you have worked for someone, they should be paying you – no excuse – and our next tip goes some way into making this happen. Getting paid on time, however, is a little more within your control (although constant chasing of outstanding invoices is the bugbear of many a freelancer). It’s vital to set up some sort of system when dealing with invoices, a way of recording which are paid and which are overdue. This could be as simple as low tech as a well-organised notebook or a spreadsheet. If you want to go fully digital and have access to powerful features for tracking your invoices (including sending reminders and the ability to allow clients to pay you directly by credit card) then we advise you set up an account with the above-mentioned app Wave.
Whichever way you decide to invoice, make sure you do it in a timely manner otherwise you could find yourself in a sticky cashflow situation. 14 to 28 days is reasonable when setting your terms. Invoice in plenty of time to avoid going further into your overdraft or credit card. Sometimes, you might have some trouble getting payment owed to you, the next peice of advice should get you sorted…
It’s important not to freak out if payment is only just overdue. Don’t make the mistake of chasing clients before the date on your terms of payment or you risk looking like an idiot. Many freelancers are understandably edgy about payment and jump to the conclusion that someone is trying to avoid paying them. However, it is important to keep your cool, and send a civil reminder via email or contact the relevant person by phone giving them a gentle nudge. Most of the time the hold up was nothing more sinister than a slip of the mind and a friendly reminder will do the trick. However, if this does not work and your efforts are being ignored then it is time to step up your game.
For as little as £3 + VAT you can have a solicitor send either a Letter Before Action (LBA) which is a letter sent from the solicitor to the client informing them that court action will be taken if they do not pay up within seven days, or a Late Payment Demand (Also for as little as £3 + VAT) which allows you to claim interest, compensation and your reasonable debt collection costs under the Late Payment of Commercial Debts (Interest) Act 1998. Solicitors Thomas Higgins Ltd had this to say about an LPD via their website:
“Where an invoice is not paid or is paid late, the Act and Regulations 2002 & 2013 allow you to charge interest at the annual rate of 8% above base rate for each day your invoices are overdue. You are also entitled under the same regulations to charge compensation against your debtor if an invoice is overdue by as little as a day. The compensation you are allowed to charge depends on the unpaid debt amount.”
So what compensation are you allowed to charge? According to Thomas Higgins the scale looks like this –
Some freelancers even choose to put forewarning about compensation and interest in the footer of their invoice, with many people reporting an increase in the amount of on-time payments since including this piece small print.
Open a specific bank account
It’s a good idea to keep your freelance income separate from your main current account, with some clients insisting that all money must go into a business account when invoicing for payment.
Luckily, with modern technology only a stretch of the arm away, there is a start-up firm dedicated to making business banking as straightforward as possible for freelancers.
Download the Tide app and you can have a business account designed for sole-traders set up in minutes. When you have it set up you’ll receive a snazzy card in the post. Within the app, you can use useful tools such as categorising your income or expenditure and invoice directly within the app.
Tide is a great way of keeping track of your income ready for the dreaded tax return.
Got any more tips for fellow freelancers. Share in our comments section below.