Tax

The fact that I spent Saturday morning on a course on the subject of tax with several other freelancers, says a lot about how much my life has changed recently.

The fact that I found myself thoroughly enjoying it and feeling it was the best money I’d spent in a long time says a whole lot more.

Upon starting freelancing I made the bold decision to do my own taxes. The forms seem relatively simple and by reading up online in various sources I’ve been able to piece together what I should/shouldn’t be claiming for.

Honestly, I’ve avoided using an accountant for fear that any money they may save me may have simply ending up being their fee. So it was great to have some questions answered and for the most part, to be told that I (along with the other participants who filled in their own returns too) were doing it correctly but could probably save a few more pennies as well.

Best practice

With regards to the tax the second best thing I’ve done is to keep quite meticulous records of how much money has been coming in and how much money has been going out in the form of expenses. Keeping hold of all those bus tickets and purchase receipts is an arduous task that I’d rather not have to do but I’m rather do it as I go along instead of collating it all a week before my tax is due.

Without a shadow of a doubt, the best thing I’ve done is to save all the tax money in advance. Whenever an invoice is paid I automatically put a percentage of that away into a separate bank account and do not try not to think about it. I even, and this is where you’ll hate me, put in more than I need to — roughly I should be saving 25% but I very strictly save 35% which is admittedly a struggle but that extra money is a welcome bonus at the end of the tax year when I need new equipment or a holiday.

I also try my best not to think of an invoice’s value as being all mine. If the invoice is worth £1000 I do my damnedest to only think of it as £700 (or even less). Sitting there thinking ‘I’m getting paid £1000 next week so I can go and spend £1000‘ would only lead to a tragically short-lived business career.

Admittedly, it can be an absolute wrench to be paid a sizeable sum of money only to realise a significant portion of that simply is not mine. This way of thinking definitely has to be factored into the rates I charge to people which is another reason why I turn away requests for websites at rock bottom prices.

Summary

I was very happy with the course and I’d be very interested in similar courses like this that help with my business. I got to meet some very interesting people who weren’t web designers including make-up artists and TV directors and that made it even more interesting.

Saving Time and Money for Freelancers‘ was put on by Northwest Vision and Media and presented by Jonathan Ford.

11 responses to “Tax”

  1. Who knew tax could be so exciting?! ;)

    Until recently, we did our own paperwork, but now have a book-keeper and accountant (both highly recommended!). It’s probably not a great time-saver, but it’s definitely a morale-boaster – not having to trudge through it is blissful. I suppose ignorance is bliss!

    • I think there definitely has to be a point where taxes need to be done by a trained professional. Luckily I’m in situation as aone-man operation where I can afford the time and don’t mind doing it.

  2. Phil,

    Long time reader – first time poster.

    Interesting post. Not something I’m overly thought about taxes but which clearly people who intent to go freelance need to.

    I’m new to the whole industry – getting certs for development and pursuing Front End work eventually, self employed or otherwise. My girlfriend is a Sage bookeeper & ATT student so i expect she’ll manage my books for free, well I may pay her in kind ;->.

    Love the blog posts, they’re always very informative and highly, useful to newbies like myself just starting out.

  3. Hi Phil,
    I did my own accounts for the first few years of freelancing, until I got too busy (and lazy) to bother. Then I found a brilliant accountant and he saved me a fortune; so much that it made me regret doing my own books for the previous years. In retrospect, it’s sort of like when a client decides they can do design work. They can, and it might even look ok… but it’s never as good.

  4. Another interesting post Phil. It’s definitely beneficial to have a good working knowledge of accounts and to keep a close eye on them, but having an accountant can really take the pressure off at times. If they’re any good, they’ll save you much more money than they charge and it’s reassuring to know that there’s someone watching your back and reminding you of those looming tax deadlines. We use a combination of online software and real accountant to keep track of all our accounts so we can focus more of our time on the business of being creative. Hats off to you for the strict saving regime!

  5. I always think that the question of whether to do your own bookkeeping comes down to how long it takes you, and how much you charge for your time. If you spend four hours a month doing your own taxes [in my experience, a conservative estimate] and charge £30 an hour, and if you can pay an accountant £100 a month to sort everything out for you, then doing them yourself is surely wasting money? Not to mention the other benefits of using an accountant, as mentioned by other posters — peace of mind, suggestions you may not have thought of an so on. Do you find that managing your own finances actually saves you money?

    • It’s very difficult to state whether doing my own taxes saves me money. Having not used an accountant it’s impossible to state whether they could/could not have saved me money. Actually, that’s not 100% true because I have spoken to accountants and they have made suggestions that could have saved me money that I didn’t especially want to pursue.

      I did learn at the tax talk about the flat rate VAT scheme. This was something that had I gone to an accountant when I started and asked questions about such matters I probably could have *made* a bit more money.

      I’m the type of person who wouldn’t be happy handing over all my financial information to someone else (even a very well trained professional) without keeping track of it all myself therefore I think the cost saving in terms of my time wouldn’t be applicable (for me).

  6. “Sitting there thinking ‘I’m getting paid £1000 next week so I can go and spend £1000’ would only lead to a tragically short-lived business career. ”

    Ridiculous isn’t it, Phil, but my other half actually knew a wet-behind-the-ears contractor who did just that! He was using an umbrella company and he just figured that what he was getting paid out was the end of the story!

    Went and bought a fast car and everything, bragged to all his pals about how well he was doing, should have done it years ago, why waste your time working for the Man and all that.

    Hate to have been him when he got his self-assessment through the post.

    Lastly, take care when posting any dosh-related topics. I know from hearsay that the Rev have got Google and they’re not afraid to use it! You’ve got nothing to hide, of course, but you could definitely do without the hassle :-D