In a recent article on National Freelancers Day, Guardian journalist Emma Lunn offered her advice on financial survival to those considering joining the ever-growing army of 4-million freelancers. We’ve added some of our top tips for survival too.
Illness and Accident Provisions
Being self-employed, there’s no sick pay either from an employer or the state; so make sure you have enough funds to cover any times you’re unable to work through either an accident or illness.
Save for your Tax and NI Bills
No ifs or buts; the taxman must be paid in full and on time. Check with your accountant or HMRC to make sure you know the how, the what and when you must pay. Depending on how you’ve set up your company and whether you pay yourself a salary you’ll need to how much personal tax and Corporation Tax you need to save for – and whether you’re paying National Insurance as Class 2 (a fixed monthly amount) or Class 4 (a percentage of your annual profits). We recommend good discipline, by transferring a percentage of all of your (net) Invoices into a high-interest account. Most business bank accounts offer this via the Business Money Manager (BMM) account that ‘sits behind’ your current account. You could also be a little more creative and consider Premium Bonds (see our recent article here).
Need an Accountant?
Are you confident in submitting your Real Time Information (RTI), Corporation Tax Returns, NI contributions, VAT bill and self-assessment tax returns? If not then you need an accountant. Most Accountants charge an annual fee that covers all of this and more (including the creation of your Audited Accounts to Companies House) – and most take payment monthly by Direct Debit/Standing order.
Make sure you establish suitable payment terms at the offset. The ‘norm’ is 30-days (and we’ve found the vast majority will pay within a working week) but check with your client ahead of starting work to make sure. If you’re unfortunate enough to hit the 30-day deadline without payment don’t hesitate to email and call your client for payment. If you’re unfortunate enough to suffer further from a ‘poor payer’ Lunn’s article provides you with great advice – noting that a solicitor’s letter can be sent for as little as £2.
Rainy Day Provisions
There is a simple solution to every freelancers worst nightmare (work dries up overnight) – get saving! We recommend you build up a ‘slush-fund’ that will cover you for 3-months. It’s highly unlikely that you will ever need this fund – but you’ll be more relaxed knwoing it’s there! You also need to consider what arrangements you need for the longer term (pensions etc.).
Work from Home
If you don’t need a dedicated office then create one at home. Although your Utility Bills will be higher, this can be offset against your tax bill. Just beware of slipping into ‘I’ll just go and do…(insert household chore)…’ as you must be disciplined when you need to ‘put in a day’s work’.
Original article in full here.
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