There’s no denying it: tax season strikes fear in many of our hearts. As freelancers or business owners, minor discrepancies in our accounts turn entire workdays into invoice scavenger hunts and book-balancing marathons. Not only is the process repetitive, but – if you file papers late – it’s expensive, too (HMRC can tell you just how expensive right here). Whether accounting chaos is part of your past, wreaking havoc right now, or if you’re blissfully unaware of your books, read on (note: we’re not accountants, so please use this as a guide, and always refer to HMRC should you need more info).
Who pays tax?
If you were self-employed or owned a business between April 6 2016 to April 5 2017, you’ll need to fill out a tax return. If you make money by means other than a company salary (that you don’t own), you’ll also need to fill a tax return.
Tax is deducted from all your income streams. It can be complex if you’re making money on more than just freelance work (renting a flat, paying yourself dividends, maintaining alternative investments, etc.). For the sake of this article we’ll ignore those and focus solely on your income as a freelancer. Find a complete breakdown of what is (and is not) taxable right here.
First things first: record it!
This is the cornerstone of your tax return: keep a clear record. If you get in the rhythm of doing this once a month it won’t be as painful as waiting until the end. Maintain a unique place where you record expenses and revenue as the year progresses.
The minimum information you need is for each payment that’s going in or out is:
Date the invoice was raised
Who raised it (optional but useful for you!)
VAT (if you’re VAT registered)
You’ll also need proof of the invoice, whether digital or physical. You’re required by law to keep these for five years after your tax return, so keep them in a safe and organised place! (We use the TinyScanner app to capture documents and save them in a shared folder on Dropbox for safekeeping.)
And if you need an additional hand we even created a handy spreadsheet to make it easier in 6 simple steps! (Download here.)
Split personal and business costs
It’s relatively easy to open another bank account just for your work expenses and payments—alternatively, you can use apps like Expensify, iXpenseit, or Concur. If you want a clearer breakdown of your costs and more control over your expenses, a prepayment card like Monzo (which will eventually be a bank) is a great option.
Get your money back
As a freelancer, you’re entitled to deduct the costs of running your business from your profit. It’s only fair, since it costs money to make money! Keep things easy and separate business and personal payments.
The following can be counted as expenses:
Stationary, Office, property, and equipment
Car, van and travel expenses (petrol to get to your shoot, travel cards to meeting clients)
Legal and financial costs
Marketing, entertainment, and subscriptions
Click here for a full list. (If you use our free accounting spreadsheet, these have already been added for you!)
Unsure about how to navigate tax season? Ignoring an issue in the hope it will disappear just makes things worse. Communication is key—HMRC understand that people make mistakes! Give them a ring if you’re unsure. From our experience, they’re happy to guide you through most issues.
Assert your value
Tax season is the perfect time to reassess the money you’ve made (or not made). Make a resolution to defend your time (and your value) as a creative. Re-evaluate your rates and pricing; charge clients your true value and don’t work for free. Your time is valuable, so make sure you profit from it! We know it’s not always easy to communicate with clients—if you’re not sure how to reply to a “Our budget for this project is actually £0” email, take a deep breath and use this automatic response generator.