Managing your income as a contractor or freelancer
December 14, 2018
Along with the benefits of self-employment, there is a need to manage your income as a contractor or freelancer which many may not appreciate when they set out on the road to self-employment.
One reason for this is that being a freelancer or a contractor may leave you exposed to late- or non-payers so you will need to be flexible and account for the drops in income that will inevitably occur.
Also, you will need to be prepared for self-assessment at the financial year end and while this can be overwhelming you could use the expertise of a friendly online accountancy firm to take the stress out of managing your finances.
Don’t forget that you will need to set money aside on a regular basis to meet any tax demand that HM Revenue and Customs will send you.
This also means that you’ll need to calculate very carefully how much you should be charging clients so you can earn a salary, pay your tax bill and any other expenses that come with running your business.
Financial issue for the self-employed
The other financial issue for the self-employed is that they might need to prepare their accounts every year to a date that doesn’t match the tax year-end. For example, their financial year may end every September, whereas the tax year will begin in April.
However, the first step to managing your income effectively is to have a business bank account.
Doing so will draw a clear line between your business and personal funds and the sooner you have this account, the better it will be.
The next most important issue for managing income is to be organised. You’ll need your accounts in order from the moment you begin working as a contractor or freelancer so you’ll need to keep a copy of receipts and other outgoings and also your invoices.
Be wary of the expenses you claim as, for example, you cannot claim for travelling from home to work and you need to work out how much your home costs are to claim against tax.
Finding a good accountant
This then brings us onto finding a good accountantbecause there’s no substitute for a knowledgeable and experienced accountant to help make your business a success.
It’s even better if you can find an accountant who has knowledge of your industry and who can clearly explain the accounts that are necessary to you and help you manage your income effectively.
Another issue when it comes to managing income as a contractor or freelancer is the question of whether they should set up as a limited company or a sole trader. There are pros and cons for each of these that we have explained in more detail in other biaccountancy.com blogs.
While you can save tax by running your business as a limited company, there is more administration involved and a lot will depend on your personal circumstances.
Most contractors and freelancers will set up as sole traders, so they are legally one and the same as their business and they will need to file a self-assessment tax return every year.
An online accountancy
Essentially, you should never lose sight of the fact that ultimately the business is yours and you are responsible for it so if you are not getting the most from your current accountant then you need to find one that is a better fit for you and an online accountancy may be ideal.self