Freelancers, self-employed – how do you organise finances?
Discussion
I'm about to leave my job and go freelance. This will consist of doing similar work to my current role (but less of it!), plus I'm also in the process of setting up a holiday let business.
I'm already registered for self-assessment as I previously rented out a property, but I need a better system to keep track of everything and make sure I'm keeping appropriate records, as well as taking advantage of the various allowances and so forth.
I think I may need an accountant, but even leaving that aside, I'm guessing I'll want some decent software to stay on top of everything for tax purposes and decision-making.
Any pointers on how best to approach this?
I'm already registered for self-assessment as I previously rented out a property, but I need a better system to keep track of everything and make sure I'm keeping appropriate records, as well as taking advantage of the various allowances and so forth.
I think I may need an accountant, but even leaving that aside, I'm guessing I'll want some decent software to stay on top of everything for tax purposes and decision-making.
Any pointers on how best to approach this?
I am in FSB, small businesses
I use this for VAT purposes but it does more
https://www.fsb.org.uk/membership/fsb-member-benef...
I use this for VAT purposes but it does more
https://www.fsb.org.uk/membership/fsb-member-benef...
Sole trader and we're talking small sums initially for the freelance work (like £1k/month perhaps) as I'll be focussing on getting the holiday business going, and it's more to keep my hand in. The work is writing, so I guess I'm selling my time?
Both ventures will be well below the VAT threshold for the time being.
Both ventures will be well below the VAT threshold for the time being.
Edited by MajorMantra on Tuesday 13th February 17:40
softtop said:
I am in FSB, small businesses
I use this for VAT purposes but it does more
https://www.fsb.org.uk/membership/fsb-member-benef...
Useful, thank you!I use this for VAT purposes but it does more
https://www.fsb.org.uk/membership/fsb-member-benef...
MajorMantra said:
Sole trader and we're talking small sums initially for the freelance work (like £1k/month perhaps) as I'll be focussing on getting the holiday business going, and it's more to keep my hand in. The work is writing, so I guess I'm selling my time?
Both ventures will be well below the VAT threshold for the time being.
I use a simple spread sheet for holiday let business. One sheet for income, one for expenses and an overview page that shows me where I am in terms of being in profit or losing money, helps to know if you need to make an investment into some repairs to lessen the tax bill. Both ventures will be well below the VAT threshold for the time being.
Edited by MajorMantra on Tuesday 13th February 17:40
softtop said:
I use a simple spread sheet for holiday let business. One sheet for income, one for expenses and an overview page that shows me where I am in terms of being in profit or losing money, helps to know if you need to make an investment into some repairs to lessen the tax bill.
How do you organise your receipts? You could easily run the writing business on an Excel spreadsheet but the holiday let business might benefit from something like Xero. I found a separate bank account & credit card helped greatly in identifying business expenditure.
Xero is £30 a month but you can try it for 30 days:
https://www.xero.com/uk/
Xero is £30 a month but you can try it for 30 days:
https://www.xero.com/uk/
I would say use some software such as Xero or Quickbooks and get into the habit of recording everything from the start. It gets you into the habit - even if you keep too many records when you look back. Categorising every receipt, bill or invoice at the time can feel like a chore or a pain - but it makes life so much easier when you come to do the accounts months later. If you have an app on your phone you can take a photo and automatically file the info. At the very least it makes sorting out the big envelope of paperwork that much easier and quicker!
I've been self-employed for 25 years, sole trader, not VAT-registered, working from home.
I just keep 2 piles of paperwork - invoices and receipts - and a mileage log book (I claim the 45p allowance).
I transfer £200 a month into a savings account to cover the tax bill.
When I have a quiet day in the summer, I tot up the income and expenses, take off the mileage and WFH allowances, and write everything in a cash book.
Takes a couple of hours to do the sums, and another hour or so to do the self-assessment online.
All the paperwork goes into a file.
Simple, cheap, and works fine for me
I just keep 2 piles of paperwork - invoices and receipts - and a mileage log book (I claim the 45p allowance).
I transfer £200 a month into a savings account to cover the tax bill.
When I have a quiet day in the summer, I tot up the income and expenses, take off the mileage and WFH allowances, and write everything in a cash book.
Takes a couple of hours to do the sums, and another hour or so to do the self-assessment online.
All the paperwork goes into a file.
Simple, cheap, and works fine for me
MajorMantra said:
softtop said:
I use a simple spread sheet for holiday let business. One sheet for income, one for expenses and an overview page that shows me where I am in terms of being in profit or losing money, helps to know if you need to make an investment into some repairs to lessen the tax bill.
How do you organise your receipts? clockworks said:
I've been self-employed for 25 years, sole trader, not VAT-registered, working from home.
I just keep 2 piles of paperwork - invoices and receipts - and a mileage log book (I claim the 45p allowance).
I transfer £200 a month into a savings account to cover the tax bill.
When I have a quiet day in the summer, I tot up the income and expenses, take off the mileage and WFH allowances, and write everything in a cash book.
Takes a couple of hours to do the sums, and another hour or so to do the self-assessment online.
All the paperwork goes into a file.
Simple, cheap, and works fine for me
Eta. Quoting because generally the same approach here. I just keep 2 piles of paperwork - invoices and receipts - and a mileage log book (I claim the 45p allowance).
I transfer £200 a month into a savings account to cover the tax bill.
When I have a quiet day in the summer, I tot up the income and expenses, take off the mileage and WFH allowances, and write everything in a cash book.
Takes a couple of hours to do the sums, and another hour or so to do the self-assessment online.
All the paperwork goes into a file.
Simple, cheap, and works fine for me
Separate bank account (Lloyds allows a download of a years entries in excel readable form) and business specific email address to send receipts and guarantees to. This is enough to make a small business ok, but any more complicated and I can see xero as described above being very useful.
Edited by Austin_Metro on Wednesday 14th February 08:23
https://www.crunch.co.uk/what-we-do/accounting-sol...
Take a look at these people, costs 1% of earnings up to maximum of £360 a year.
Take a look at these people, costs 1% of earnings up to maximum of £360 a year.
My wife is self employed, offering a service, and runs a small business which I help with by doing most of her record keeping etc.
We've found what works for us is a spreadsheet, where we put the income/expenses, the expenses are stored by HMRC category, so that come self assessment (SA) time the income/expenses are calculated.
We also make a note, in a note taking tool, that we both can use to store expenses when they're paid, as we don't keep the spreadsheet up to date.
The spreadsheet is also used to create invoices, by printing PDFs, which we store on the PC/Cloud.
I also use PocketSmith, a web based tool, which costs £70 per year, that downloads data via OpenBanking from all our accounts.
I find it really useful as I can categorise all transactions so when doing self assessments I can double check what's in the spreadsheet/notes.
In time I'll drop the note taking and rely on Pocketsmith but I've not been using it long and need to replicate our manual process by creating reports in this tool.
Not a sales pitch but it's the best tool I tested for this sort of thing and It's best feature is that there is no limit to the transaction history.
We've found what works for us is a spreadsheet, where we put the income/expenses, the expenses are stored by HMRC category, so that come self assessment (SA) time the income/expenses are calculated.
We also make a note, in a note taking tool, that we both can use to store expenses when they're paid, as we don't keep the spreadsheet up to date.
The spreadsheet is also used to create invoices, by printing PDFs, which we store on the PC/Cloud.
I also use PocketSmith, a web based tool, which costs £70 per year, that downloads data via OpenBanking from all our accounts.
I find it really useful as I can categorise all transactions so when doing self assessments I can double check what's in the spreadsheet/notes.
In time I'll drop the note taking and rely on Pocketsmith but I've not been using it long and need to replicate our manual process by creating reports in this tool.
Not a sales pitch but it's the best tool I tested for this sort of thing and It's best feature is that there is no limit to the transaction history.
Edited by FriedMarsBar on Wednesday 14th February 09:16
If you’re well organised with receipts and keep a decent record, it’s worth noting the accountancy fee is an allowable expense you can offset.
Your accountant should also be up to date on the latest allowances for small businesses to be worth the cost of their fee alone (things you can claim that you might not have realised if you’ve been PAYE such as allowances for using a room in the house to run the business etc).
Your accountant should also be up to date on the latest allowances for small businesses to be worth the cost of their fee alone (things you can claim that you might not have realised if you’ve been PAYE such as allowances for using a room in the house to run the business etc).
Some really good replies here, thank you. They've helped me think about what I might want from any system I adopt.
Here are some things I'd like to be able to do...
1. Track all expenses and allocate them to revenue/capital. (I'm renovating the holiday let so incurring some capital expenses.)
2. Cover both 'businesses' (freelancing and holiday let) and allocate shared expenses. E.g. I'm going to be buying a new laptop which I'll use for both activities, so I'd probably split it.
3. Allow for splitting the income from the holiday let in the future. I share the asset with my wife, but I understand that for furnished holiday lets we can decide how to split the income (and the apportioning may change over time according to how much each of us is earning): https://www.gov.uk/hmrc-internal-manuals/trusts-se...
Is this asking too much? I could, for example, do the freelance side manually with a spreadsheet, but if I could do it all in one place that would be ideal.
Here are some things I'd like to be able to do...
1. Track all expenses and allocate them to revenue/capital. (I'm renovating the holiday let so incurring some capital expenses.)
2. Cover both 'businesses' (freelancing and holiday let) and allocate shared expenses. E.g. I'm going to be buying a new laptop which I'll use for both activities, so I'd probably split it.
3. Allow for splitting the income from the holiday let in the future. I share the asset with my wife, but I understand that for furnished holiday lets we can decide how to split the income (and the apportioning may change over time according to how much each of us is earning): https://www.gov.uk/hmrc-internal-manuals/trusts-se...
Is this asking too much? I could, for example, do the freelance side manually with a spreadsheet, but if I could do it all in one place that would be ideal.
I've been self-employed pretty much my entire life. This is how I've learnt to do it;
Accounts;
1). Keep all business income and spending in one separate bank account for each business. Don't pay or accept cash if you can avoid it. Keeping all income and outgoings in one place really simplifies it.
2). At the end of each tax year, export the whole year into a CSV file and into excel. (Almost all banks have this function) Go through it putting each transaction into a category, income, rent, utlities, stationary (ideally the same categories your accountant uses in the year end profit & loss). Total up each category. It might sound complicated but with a bit of excel, knowledge, search, filters, etc, its pretty quick. I have a few businesses and it only takes me between 30 mins and a hour to do each ones year end. I find this easier than using any software.
3). Things that aren’t included in the bank statements, mileage, use of home as office, etc I email to the accountant and let them advise on what to include.
Cashflow & tax;
1). Keep a separate saving account for tax.
2). If its LTD then I keep a separate business savings account for corp tax, if it sole trader 'personal tax' then keep a personal savings account.
e.g
If a business turns over £5,000 per month, you fixed monthly overheads are £2000, non monthly overheads £500. Once a month put £500 in a savings account and pay yourself £2000 into your personal account. Leaving the main account growing by £500 a month for non monthly overheads.
You'll need to work out how much to put aside. Easy enough to roughly work out your tax liability, but I also put aside for other things. For example, I know what property maintenance costs me on average over year, so I put aside a monthly reserve for that.
Be generous with your estimate of what to put aside, so your building capital. Every now and again when the capital is comfortably higher than required, pay yourself a bonus.
EDIT, oh and by running the cashflow like this. If you have a variable turnover month to month. You can even that out somewhat and keep what you pay yourself more consistent. e.g. If you know over a year your business can pay you £2500 a month, I prefer to pay myself £2000 every month. Rather than £3000 one month and £1500 another. Try to average it out in the businesses favour, again building some reserve.
The above is great for a one-man band or small simple business. But if your VAT registered, retail or have multiple employees then its a lot more complicated. You need to be doing management accounts a lot more often & filing VAT receipts.
Accounts;
1). Keep all business income and spending in one separate bank account for each business. Don't pay or accept cash if you can avoid it. Keeping all income and outgoings in one place really simplifies it.
2). At the end of each tax year, export the whole year into a CSV file and into excel. (Almost all banks have this function) Go through it putting each transaction into a category, income, rent, utlities, stationary (ideally the same categories your accountant uses in the year end profit & loss). Total up each category. It might sound complicated but with a bit of excel, knowledge, search, filters, etc, its pretty quick. I have a few businesses and it only takes me between 30 mins and a hour to do each ones year end. I find this easier than using any software.
3). Things that aren’t included in the bank statements, mileage, use of home as office, etc I email to the accountant and let them advise on what to include.
Cashflow & tax;
1). Keep a separate saving account for tax.
2). If its LTD then I keep a separate business savings account for corp tax, if it sole trader 'personal tax' then keep a personal savings account.
e.g
If a business turns over £5,000 per month, you fixed monthly overheads are £2000, non monthly overheads £500. Once a month put £500 in a savings account and pay yourself £2000 into your personal account. Leaving the main account growing by £500 a month for non monthly overheads.
You'll need to work out how much to put aside. Easy enough to roughly work out your tax liability, but I also put aside for other things. For example, I know what property maintenance costs me on average over year, so I put aside a monthly reserve for that.
Be generous with your estimate of what to put aside, so your building capital. Every now and again when the capital is comfortably higher than required, pay yourself a bonus.
EDIT, oh and by running the cashflow like this. If you have a variable turnover month to month. You can even that out somewhat and keep what you pay yourself more consistent. e.g. If you know over a year your business can pay you £2500 a month, I prefer to pay myself £2000 every month. Rather than £3000 one month and £1500 another. Try to average it out in the businesses favour, again building some reserve.
The above is great for a one-man band or small simple business. But if your VAT registered, retail or have multiple employees then its a lot more complicated. You need to be doing management accounts a lot more often & filing VAT receipts.
Edited by CaiosH on Wednesday 14th February 10:50
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