Starting as self-employed, any tips?

Saria

So I was made redudant at the start of August after working for a company for 7 years (still waiting on the insolvency case number so I can claim for redudancy and notice pay!). I have just now registered for Self Assessment, but to be honest I have no clue what I am doing haha!   

I did a small job in August for 25 hours, and on Monday I am starting a 1 month design job with another company, with the possibility of more hours after (so a bit of a trial). 
When doing jobs for businesses, does there need to be some sort of written contract which defines how much I should earn and what I will be doing? Or is this not necessary? And I know I need to provide an invoice for each job I do, and keep track of these for HMRC right?

In regards to payments, is it okay to receive these in whatever bank account I have? As I currently have no other income, can I simply use the current account in which I used to receive my wages for my old job? Or do I need to set up a new account somewhere? And does this need to be a business account or can it just be a normal one? 
I already have a few current accounts I use for switching, but I don't really use any of them for income. I assume it would be best to set a certain amount of my income aside to pay for NI and taxes? 

For expenses, I am not sure what exactly I would be able to list for this. I work from home and use my own laptop, though I am having to buy a new one soon when I have some funds, so I assume that could be a business expense? I also just bought a monthly subscription to Adobe Creative Suite, but I did it through my husband as he is a teacher and gets a discount, so I guess I can't list this as an expense for me then?

Lastly, are there any tools or programs that might be useful, especially in regards to keeping track of my accounts? Anything that might be useful for a clueless person starting out as self-employed?

Thank you! Any tips are welcome! I am terrified of messing up haha! 

TBagpuss

Yes, you should have a written agreement - as a minimum, you should have something which set s our what you are going to do, and the terms for payment -it doesn't need to be complicated something like:

.Work to be done

-  painting living room, 1 coat of undercoat and two coats of top coat, paint supplied by homeowner,
cost - £200 
Payment terms - £50 deposit on accepting terms, balance upon work being completed.

Signature of client to authorise work 

If you don't have anything in writing then it is very difficult for you to get paid in the event that anyone turns nasty, and it also ensures that your limitations are clear - you don't want situation where you agree to do a small job for a set fee, and the person you are doing it for then wants to add lots of  extra things or make the job more complex, but expects it all for the same price. 

I'm not familiar with what would be involved for a design job but if you are agreeing a fixed price, you may want to specify how many edits / changes to the design that covers, or alternatively to look at an hourly rate with some guidance as to the length of time you'd expect specific jobs to take .

It may be sensible to have a template terms of business drawn up which sets out your hourly rate, and different rates (e.g. if you chare more  for rush jobs, or for work out of hours) and any additional costs (e.g. who supplies materials, whether you charge for time spent travelling to and from the client's business and if so at what rate etc. 

Your payment terms should specific what is payable and when, and you may want to include a statement that interest will be payable on late bills and that interest and costs of recovery will be claimed if payment is not made in accordance with the agreed terms. 

Make sure you set your rates to allow for the fact that you are self employed, so you will be paying your own ta, NI, pension contributions etc, will have no paid holidays or sick leave etc. If you are likely to be taking on long term projects make sure your terms of business include a provision to allow you to review and increase your hourly/daily rate.

Yes, keep copies of invoices and also keep records. You will need to know
- How much you bill
- How much you are paid 
- Your expenses (e.g. cost of buying any tools, costs of paying an accountant or other professionals, cost of materials if you supply them, work related travel costs) You may be able to claim tax relief on the proportion of costs (such as car tax etc) used for business purposes.

Make sure that you have insurance - e.g. that your car insurance coves you for business travel is you are going to be driving to other locations, that your home insurance covers you if you work from home, that you have any necessary insurance for the work you will be doing .

Keep track of your financials through the year so you have all the info you need to do your tax return, and if you possibly can, put money away each month to cover your tax bill and NI.

I suggest having an account you only use for the business - it's not a requirement but it is much easier to keep track of! 

Saria

TBagpuss said:

Yes, you should have a written agreement - as a minimum, you should have something which set s our what you are going to do, and the terms for payment -it doesn't need to be complicated something like:

.Work to be done

-  painting living room, 1 coat of undercoat and two coats of top coat, paint supplied by homeowner,
cost - £200 
Payment terms - £50 deposit on accepting terms, balance upon work being completed.

Signature of client to authorise work 

If you don't have anything in writing then it is very difficult for you to get paid in the event that anyone turns nasty, and it also ensures that your limitations are clear - you don't want situation where you agree to do a small job for a set fee, and the person you are doing it for then wants to add lots of  extra things or make the job more complex, but expects it all for the same price. 

I'm not familiar with what would be involved for a design job but if you are agreeing a fixed price, you may want to specify how many edits / changes to the design that covers, or alternatively to look at an hourly rate with some guidance as to the length of time you'd expect specific jobs to take .

It may be sensible to have a template terms of business drawn up which sets out your hourly rate, and different rates (e.g. if you chare more  for rush jobs, or for work out of hours) and any additional costs (e.g. who supplies materials, whether you charge for time spent travelling to and from the client's business and if so at what rate etc. 

Your payment terms should specific what is payable and when, and you may want to include a statement that interest will be payable on late bills and that interest and costs of recovery will be claimed if payment is not made in accordance with the agreed terms. 

Make sure you set your rates to allow for the fact that you are self employed, so you will be paying your own ta, NI, pension contributions etc, will have no paid holidays or sick leave etc. If you are likely to be taking on long term projects make sure your terms of business include a provision to allow you to review and increase your hourly/daily rate.

Yes, keep copies of invoices and also keep records. You will need to know
- How much you bill
- How much you are paid 
- Your expenses (e.g. cost of buying any tools, costs of paying an accountant or other professionals, cost of materials if you supply them, work related travel costs) You may be able to claim tax relief on the proportion of costs (such as car tax etc) used for business purposes.

Make sure that you have insurance - e.g. that your car insurance coves you for business travel is you are going to be driving to other locations, that your home insurance covers you if you work from home, that you have any necessary insurance for the work you will be doing .

Keep track of your financials through the year so you have all the info you need to do your tax return, and if you possibly can, put money away each month to cover your tax bill and NI.

I suggest having an account you only use for the business - it's not a requirement but it is much easier to keep track of! 

Thank you for your detailed reply!

The problem with this job is that it's still a bit unclear what exactly I will be doing, other than designing templates/assets (it's a start up and the product isn't live yet). We've agreed on a 1 month term (22 days, 7.5 hours per day) with a fixed pay and then we'll see after the 1 month if we want to continue together. He'll pay half now, half at the end. So I guess it would be best for me to put those details into an agreement and ask him to sign it? 

I'll have to look into some of the other things you mentioned! I don't drive and don't have a car, but I do work from home and am unsure how that might affect my home insurance (though I don't keep any stock and don't have clients visiting). 

My expenses right now will be quite limited, it's basically just the subscriptions for programs I use and potentially a new laptop in the near future. I know that there's also a £1000 trading allowance, but that I won't get this when claiming expenses.

I was thinking of putting aside about 25-30% for NI and tax, but it will depend on how much work I can get coming in. This is my only income so far and I imagine there will be periods with nothing coming in at all (like the last month where I had no income), so then I might have to dip into that bit of money. 

And yes, I'll look at using one of my current accounts for my self-employed job then, thanks! 

NSG666

In your quieter times have a look on the Gov website with links to Self Assessment. When I went SE I went on a couple of courses run by HMRC but I guess those got knocked on the head with Covid.

Help and support for Self Assessment - GOV.UK (www.gov.uk)

If you keep good records then submitting your SE should be fairly simple. I'd claim for the Adobe Creative Suite if I were you as it's for your business but you've just used a source of discount.

I used a spreadsheet for my records and it was fairly simple to see how I was doing at any time as there was always a running total for income and expenses hence profit. You want roughly 30% of your profit minus c.£12000 set aside for income tax and NI.
Pay class 2 national insurance contribution voluntary (£3.05/week paid at year end) if you don't earn enough as these count towards your State Pension.

Sandtree

Saria said:

TBagpuss said:

Yes, you should have a written agreement - as a minimum, you should have something which set s our what you are going to do, and the terms for payment -it doesn't need to be complicated something like:

.Work to be done

-  painting living room, 1 coat of undercoat and two coats of top coat, paint supplied by homeowner,
cost - £200 
Payment terms - £50 deposit on accepting terms, balance upon work being completed.

Signature of client to authorise work 

If you don't have anything in writing then it is very difficult for you to get paid in the event that anyone turns nasty, and it also ensures that your limitations are clear - you don't want situation where you agree to do a small job for a set fee, and the person you are doing it for then wants to add lots of  extra things or make the job more complex, but expects it all for the same price. 

I'm not familiar with what would be involved for a design job but if you are agreeing a fixed price, you may want to specify how many edits / changes to the design that covers, or alternatively to look at an hourly rate with some guidance as to the length of time you'd expect specific jobs to take .

It may be sensible to have a template terms of business drawn up which sets out your hourly rate, and different rates (e.g. if you chare more  for rush jobs, or for work out of hours) and any additional costs (e.g. who supplies materials, whether you charge for time spent travelling to and from the client's business and if so at what rate etc. 

Your payment terms should specific what is payable and when, and you may want to include a statement that interest will be payable on late bills and that interest and costs of recovery will be claimed if payment is not made in accordance with the agreed terms. 

Make sure you set your rates to allow for the fact that you are self employed, so you will be paying your own ta, NI, pension contributions etc, will have no paid holidays or sick leave etc. If you are likely to be taking on long term projects make sure your terms of business include a provision to allow you to review and increase your hourly/daily rate.

Yes, keep copies of invoices and also keep records. You will need to know
- How much you bill
- How much you are paid 
- Your expenses (e.g. cost of buying any tools, costs of paying an accountant or other professionals, cost of materials if you supply them, work related travel costs) You may be able to claim tax relief on the proportion of costs (such as car tax etc) used for business purposes.

Make sure that you have insurance - e.g. that your car insurance coves you for business travel is you are going to be driving to other locations, that your home insurance covers you if you work from home, that you have any necessary insurance for the work you will be doing .

Keep track of your financials through the year so you have all the info you need to do your tax return, and if you possibly can, put money away each month to cover your tax bill and NI.

I suggest having an account you only use for the business - it's not a requirement but it is much easier to keep track of! 

Thank you for your detailed reply!

The problem with this job is that it's still a bit unclear what exactly I will be doing, other than designing templates/assets (it's a start up and the product isn't live yet). We've agreed on a 1 month term (22 days, 7.5 hours per day) with a fixed pay and then we'll see after the 1 month if we want to continue together. He'll pay half now, half at the end. So I guess it would be best for me to put those details into an agreement and ask him to sign it? 

I'll have to look into some of the other things you mentioned! I don't drive and don't have a car, but I do work from home and am unsure how that might affect my home insurance (though I don't keep any stock and don't have clients visiting). 

My expenses right now will be quite limited, it's basically just the subscriptions for programs I use and potentially a new laptop in the near future. I know that there's also a £1000 trading allowance, but that I won't get this when claiming expenses.

I was thinking of putting aside about 25-30% for NI and tax, but it will depend on how much work I can get coming in. This is my only income so far and I imagine there will be periods with nothing coming in at all (like the last month where I had no income), so then I might have to dip into that bit of money. 

And yes, I'll look at using one of my current accounts for my self-employed job then, thanks! 

Ignoring the issues of IR35, that are your clients concerns rather than yours, the simplest model is a simple hourly rate and so your 22 days is easy to calculate how many hours you did and if you are off sick for 3 days no issues when it comes to the end of the month.

Remember that expenses must be for things exclusively used for the business so if you buy a new laptop with the idea its 80% personal use and 20% work you cannot claim the full cost of the laptop (though obviously many do). 

You are allowed to generate up to £1,000 of revenue per year before you are obliged to register as self employed and do your tax returns... buts its revenue not profits so pre any expenses... if you think your business needs a new laptop I'd hope you think the business will turnover more than £1,000.

Without wanting to be discouraging... the skills that make someone a good designer, programmer, hairdresser etc are not the same as what makes someone a good manager, business owner etc. That said, there is a big difference between setting up your own design studio and hiring yourself out as a day rate contractor.  If you are thinking something outside of being a contractor then you need to sit down and do your business plan and in particular focus on how you will find your potential customers and win their business.

Saria

NSG666 said:

In your quieter times have a look on the Gov website with links to Self Assessment. When I went SE I went on a couple of courses run by HMRC but I guess those got knocked on the head with Covid.

Help and support for Self Assessment - GOV.UK (www.gov.uk)

If you keep good records then submitting your SE should be fairly simple. I'd claim for the Adobe Creative Suite if I were you as it's for your business but you've just used a source of discount.

I used a spreadsheet for my records and it was fairly simple to see how I was doing at any time as there was always a running total for income and expenses hence profit. You want roughly 30% of your profit minus c.£12000 set aside for income tax and NI.
Pay class 2 national insurance contribution voluntary (£3.05/week paid at year end) if you don't earn enough as these count towards your State Pension.

Thank you, I've had a look at some of the government pages and videos before. I might try and check out the webinar they mention as well, see if that will help make things even clearer.  

I'll start using a spreadsheet as well, though at the moment it will be quite empty still haha!

Sandtree said:

Ignoring the issues of IR35, that are your clients concerns rather than yours, the simplest model is a simple hourly rate and so your 22 days is easy to calculate how many hours you did and if you are off sick for 3 days no issues when it comes to the end of the month.

Remember that expenses must be for things exclusively used for the business so if you buy a new laptop with the idea its 80% personal use and 20% work you cannot claim the full cost of the laptop (though obviously many do). 

You are allowed to generate up to £1,000 of revenue per year before you are obliged to register as self employed and do your tax returns... buts its revenue not profits so pre any expenses... if you think your business needs a new laptop I'd hope you think the business will turnover more than £1,000.

Without wanting to be discouraging... the skills that make someone a good designer, programmer, hairdresser etc are not the same as what makes someone a good manager, business owner etc. That said, there is a big difference between setting up your own design studio and hiring yourself out as a day rate contractor.  If you are thinking something outside of being a contractor then you need to sit down and do your business plan and in particular focus on how you will find your potential customers and win their business.

I don't really plan to set up as a studio, as I know I don't have the business skills for that haha. 
I'm just looking to do freelance jobs for now until I hopefully find an actual job somewhere. This freelancer job is just a bit of a necessity right now after being made redudant and not finding any similar jobs yet (plenty of customer service and shop assistant roles, just not much for illustrators/animators/designers). I know it won't be easy working as a freelancer, but I'd prefer to give this a try over taking a job I really don't want to do again.  

As for the laptop, sadly my current MacBook is almost 10 years old and really not up to scratch anymore, so again it's a bit of a necessity (which I'm putting off until I've saved up enough for it). I would mostly be using it for work purposes, but I'm not sure how you can prove that anyway. 

Sandtree

If you have UI/UX experience then I'd imagine there is a reasonable contractor market if you'd prefer longer engagements with a single client than doing smaller one off projects etc.

Always worth having a look at JobServe or such for contractor roles if you've the experience to back up your portfolio in addition to the freelancer sites for discrete projects.