Self Employed Freelancer...do I need an accountant or IFA or both!?

PlutoinCapricorn

You have ample time to get the 2011/2012 details correct and ready to go so take your time

More seriously, a freelance journalist and author called Nick Morgan has a horror story to tell about his investigation by HMRC. He had been claiming 'drawings' i.e. money he paid himself as an expense, which is not permitted.

http://www.tax-hell.co.uk/about/my-story/

Pennywise

Another thing to remember that a lot of people don't realise is that you have to prepare accounts/tax returns on the basis of monies earned and expenses incurred in each period, not on the actual payments and receipts. So if work is done in March, but not paid for until May, then it still has to be included in the month of March, i.e. when the work was done. People get confused because VAT for small businesses can be done on the "payments/receipts" date basis, but for self assessment, it has to be earned/incurred basis. So your spreadsheet needs two date columns - date of invoice/work done and date of payment.

CottageDreamer

Thanks Pennywise.

I read the websites PlutoinCapricorn suggested last night and downloaded some spreadsheets. Just checked and they have a column each for date of invoice and date of payment.

Thanks for your help, I am feeling much more in control and positive. A new system has been set in place where I update the info once a week after seeing his invoices / bank statements.

Fingers crossed no more arguements about tax!

Mistral001

Pennywise wrote: »

Another thing to remember that a lot of people don't realise is that you have to prepare accounts/tax returns on the basis of monies earned and expenses incurred in each period, not on the actual payments and receipts. So if work is done in March, but not paid for until May, then it still has to be included in the month of March, i.e. when the work was done. People get confused because VAT for small businesses can be done on the "payments/receipts" date basis, but for self assessment, it has to be earned/incurred basis. So your spreadsheet needs two date columns - date of invoice/work done and date of payment.

This is the way my accountant does it. However, I get the feeling that it is not a hanging matter if it is not done this way as I know many freelancers who do it just on a money-in basis.

It involves quite a bit of extra work and can be difficult to handle for the non-accounatant in my view. It involves assessing at the end of the year the percentage of work done on a project, putting a price to that and then putting it into your accounts as income. Then you pay tax on this even though you might not have been paid yet. It can be very annoying to the freelancer if you get a slow payer or even a bad debt. Of course it alll comes out in the wash in the next year accounts and you do not lose out much long term. However, knowing that you have paid tax on income you have not received does tend to annoy most people.

oldtoolie

I use the TaxCalc software to do my wife's tax return. It is easy to use, lots of help files and costs about £25. The HMRC online tax forms are better than it was when I started doing this but TaxCalc works so well, I am reluctant to change. http://www.taxcalc.com/

fguk

Tut Tut Phillip.......

Please read the forum rules, no obvious self promotion allowed!

Although the suggestion of someone to do the book keeping isnt a bad one. I am not a creative type, but hate the accounts side of things, now I have a book keeper (and I am still slow at getting him the paper work he needs!!).

Having said that, you need quite an income to justify that, but perhaps it would be justified to stop tax investigations, late payment fines etc etc.

CottageDreamer

Thanks everyone, we've started updating the spreadsheets so I'll see how it goes this way.

He doesn't earn a great deal so if we can avoid paying someone it would be helpful.......however, as fguk says I'm already starting to dislike accounts!

I'll stick with it though and thanks again to everyone for taking the time to post replies.

PlutoinCapricorn

Good luck with it all. I am sure that many people do pay someone else to do it, but when affairs are simple this is not really necessary, just convenient. There is plenty of help available on MSE, and those free HMRC courses are worth trying.

Filing online is by far the best way to do it. Scanning paperwork and keeping it for 4 years before shredding it is good practice.

Once you have got this year's figures up to date, you might feel like doing an archaeological reconstruction for previous years.

LianneCarlaS

Get an accountant, no question. It will mean that you are more likely to avoid fines. It will also save time and therefore money. An accountant will also know the ins and outs of deductibles so that he is not paying more tax than he needs to such as for home offices an accountant appropriate a portion of household expenses in relation to the amount of the house used for business purposes.

Mixing business finances into personal accounts is messy, it's more work to do to make everything separate again when doing returns. To be mixing his business expenses with your personal accounts is messier still. ~Do you invoice him for the phone bill?I know I'm taking a line from a spot cream advert but accounts really need to be 'clean, clear and under control'

Having a business account is really important and it would be even better to have a second online account that has no card attached to it. Estimate the tax bill based on knowledge from previous years. Divide it by 12 and get an automatic transfer every 4 weeks from the current account to the online saver. By the end of the tax year (thanks to the magic of months being 4.3 weeks long) you have made 13 payments into the savings account which gives you your estimated expense plus an extra month leeway if it's higher than expected. You've not had to remember to do it or be disciplined because it comes out automatically and you can both relax.

I know where you are coming from with the worry. My partner isn't self-employed but he does worry about things when they happen. Me on the other hand am happy only when I have military precision and had enough of his 'method' took control and set up a double entry bookkeeping system for household finances (I'm an accountant and I enjoy it) arranged transfers to a secondary account the secnd his wages hit the bank and we're both happy because he can spend every penny that's left in his account knowing everything is covered.

PlutoinCapricorn

The questions of whether or not a sole trader needs to get an accountant and/or have a separate business account have been discussed many times on MSE.

The most important point here is that there is no blanket rule: it depends on what sort of work is being done, the volume of business and the income level. You need to start with the sole trader's affairs then make the decisions.

I have noticed that it is often people who earn their living by doing other people's accounts who are the most insistent that an accountant is needed, whereas people who want to save money say that businesslink, HMRC website, free courses and the MSE forum have enough information for them to do it themselves. A separate business bank account certainly makes it easier for accountants.

I have been using my personal bank account and preparing my own tax returns for many years with no problems, and I would advise others to do the same if their affairs are simple.