If you own a freelance business you probably don’t want to spend hours doing your accounting each week. What you do want to do is make sure you meet all tax requirements, and also claim any tax relief that you may be entitled to.
There is no prescribed method to deal with freelancing accounts, however, there are plenty of tools accounting packages that can help you manage your books.
We have gathered some tips for freelancers to help manage their accounts and not get bogged down when trying to make sense of the books.
Tips to handle your freelancing account
1) Keep accounts separate
Although many freelancers don’t get separate bank accounts, it is highly advisable that you keep business and personal accounts separate.
A business account, like those from Tax Kings, will help you keep track of all your business expenses without factoring in personal expenses, and will give you an overall better impression of how your business is doing.
The separate business bank account should be in your freelance business’ name.
2) Keep your accountant happy even with freelance jobs
If you have an accountant, they will be very pleased if you have all your business transactions done into one bank account.
This means that all your income is paid into that account, and all business expenses are paid from that account.
If you are not VAT registered and only have a few clients, then you can store all your financial transactions in an Excel spreadsheet, with information on each transaction, and provide that to your accountant.
3) Keep track of everything
Often times it is not as easy as using a business credit card, or you may quickly pay something in cash.
When this happens, you need to keep all receipts and include them in a spreadsheet to present to your accountant, if you have one.
It will be beneficial to keep such a spreadsheet for personal and business expenses, as sometimes you might find yourself using your business account to pay for personal expenses as well.
4) Re-expense yourself
Remember to transfer money from your business account into your personal account to reimburse yourself for personal expenses.
Someone doing freelance work should still have an income and you should remember to pay yourself a salary each month.
Top Tips for Freelancers
Once you understand the basics of managing your accounts, you need to consider the legal and tax considerations.
1) Vat Registration
If you are VAT registered, your books need to reflect VAT on all expenses and income. If you are using a simple spreadsheet, indicate your VAT in separate columns and calculate your total net VAT amounts.
Identifying VAT on sales is easy as you calculated the VAT amount on the invoice to your clients. To determine VAT on expenses, you will have to check all receipts and invoices issued to you.
2) Cross-reference your system
Set up a system that will make it easy to cross-reference your spreadsheet or accounting records with all your issued and received invoices. This will allow easy record keeping if you have to go back and check something.
If your transactions are only a few, use a simple numbering system, however, if you have plenty of potential clients, you should consider a more formalised system using the date or codes for the types of products or services.
3) Use Accounting Software
There is a lot of accounting software and project management tools available that have been designed to help freelancers manage their cash flow.
Although a lot of self-employed people may not need the help of software, it certainly makes doing your own taxes or balancing your books a lot easier.
Accounting programs can do the job of a tax accountant, especially when it comes to doing your tax return.
It helps with keeping track of money coming in and going out of your bank accounts and allows you to access your financial records from any device.
Most modern software links directly to bank accounts and can scan receipts directly into the program.
4) Ask fellow freelancers
If you are a freelance writer just starting up, or if you are starting a small limited company, there is no shame in asking advice from others in similar positions.
Look for a professional network of freelancers, and ask them for advice on accounting.
You can also ask your accountant (or accountant friends) for advice on how to balance your books. They should offer you guidance on paying taxes and what the tax authorities expect of you.
5) Find something that works for you
Being a freelancer is all about that work-life balance, and not many freelancers want to spend all their time analysing their bank statements and figuring out their finances.
It is therefore important that you find a system that works for you.
There is no one-size-fits-all solution for freelancing accounts, and it may take some trial and error of trying different systems and accounting software until you find one that suits your needs.
Paying taxes, dealing with national insurance, and keeping track of your expenses can be difficult for those in freelance roles.
Fortunately, there are a lot of ways a freelancer can handle their accounts. You can use software, ask for advice from an accountant, or learn from other freelancers.