Accounting and bookkeeping – certainly not two words to get excited about unless you happen to be a freelance accountant yourself.
Nevertheless, accounting and bookkeeping are things you can’t afford to ignore. Many delay dealing with their accounts until the end of the year, particularly if they’re busy. However, if this describes you, you could be in for a few nasty shocks.
We’ve put together a list of reasons why freelancers should start making bookkeeping a priority.
You could be fined
Your first concern should be whether you’re abiding by the law when it comes to taxes.
If you’re not reporting your income and therefore paying taxes, you’ll be liable for fines and even prosecution by HMRC. Tax evasion is not something to be taken lightly.
You may hear about huge companies avoiding tax in the news but the reality is HMRC is going after the smaller firms first.
Don’t think that your business is too small to be touched. It’s not worth the risk of fines that could dampen your progress and leave you struggling to keep afloat.
You might lose money
Lots of freelancers fail to note down all their expenses so when it comes to tax time, they lose money.
If you’re declaring income that hasn’t had expenses deducted from it, you’ll be paying a higher percentage of tax based on your overall income instead of just the profit (income – expenses = profit).
It won’t help your stress levels
Are you always stressed come tax time? You certainly wouldn’t be alone but the best way to reduce stress is to make sure you’re well organised before. This means keeping good records throughout the year, noting down all expenses and saving enough for the tax bill.
Avoid the shock of a lump sum
When you’re due to pay tax, don’t do what some people do. They leave it all to the last minute and have to scrape enough money together to pay their bill. Most people would struggle to suddenly find 20% of their annual income.
Your best plan of action is to set aside around 30% of everything you make from each job to cover income tax and National Insurance. The chances are you won’t have to pay this whole sum but it’s better to be safe. If you claim expenses right you can get this bill reduced.
You’re missing out on billable time
Every minute you spend poring over your accounts, trying to make sense of them, is a minute you can’t spend on client work which will actually earn you money. This is why many freelancers hire an accountant who has experience working with freelancers so that they can concentrate on their business.
An accountant may cost you less than you think
Yes an accountant will cost money. However, their fees can be claimed as a business expense so you’ll get some of it back in the form of tax relief. Plus, an accountant can help you become more tax efficient, potentially saving you more money.
Have you got an accountant yet? For a free quote, you can contact The Accountancy Partnership here.