Accounting for Freelancers

Accounting for Freelancers

Presented by Tim WicksteedSWMobile “Going Freelance” 29/05/13

DIY Accounting for Freelancers

www.twicecircled.com@twicecircledtim@twicecircled.com

Step 1 - Should I Self-Account?Accountants cost money…

BUTIt takes time to do your own accounts

Is your time better spent working?

Yes NoSteady work? Unsteady work?

Good rates? Not freelancing full-time?

Professional accounting £30/m Control freak

Genuine interest?

“I’m going to do my own accounts!”

Step 2 – Sole trader/Ltd CompanySole trader means only one tax form to fill in at

the end of the year.Limited company is significantly more

complicated but there are advantages: Tax efficient Possibility to expand business, take on

staff/contractors Limited liability

This presentation only deals with the Limited Company route.

Step 3 – Setup1. Incorporate your company with Companies House2. Receive UTR1 from HMRC in the post3. Request an Authentication Code for Web Filing from

Companies House4. Register your company with HMRC/Government

Gateway5. Wait until you start trading6. Log-in to HMRC and use your UTR1 to enrol for

Corporation Tax7. Receive confirmation pin from HMRC in the post8. Enter pin into HMRC to finalise enrolment9. Repeat steps 6-8 for PAYE (if applicable)

1Unique Taxpayer Reference

Step 4 – Keeping AccountsOptional guidelines are in Financial Reporting

Standard for Smaller Entities (FRSSE), effective April 2008

Make a spreadsheet to track everything at the beginning!

Update it as you go along!

Use my simple template

ACCOUNTING PERIODYear 2013 2013 2013 2014 Year TotalQuarter 1 2 3 4From 06/04/13 06/07/13 06/10/13 01/01/14 06/04/13To 05/07/13 05/10/13 05/01/13 05/04/14 05/04/14

TURNOVERDevelopment Services £0.00 £0.00 £0.00 £2,000.00 £2,000.00Total turnover £0.00 £0.00 £0.00 £2,000.00 £2,000.00

COST OF SALES £0.00 £0.00 £0.00 £0.00 £0.00GROSS PROFIT OR LOSS £0.00 £0.00 £0.00 £2,000.00 £2,000.00

DISTRIBUTION COSTSTravel £0.00 £0.00 £0.00 £50.00 £50.00

Total distribution costs £0.00 £0.00 £0.00 £50.00 £50.00

Income StatementTwice Circled Ltd.

Step 5 – Paying yourselfOption 1 – Dividends and more dividends!

Pay 20% corporation tax on everything. Pay additional 25% on any dividends beyond

£32,010 (before tax)

Option 2 – Tax free salary + Dividends Pay 0% on your salary up to £7696 (2013/14 Secondary

Threshold) Pay 20% corporation tax on everything above £7696 Pay additional 25% on any dividends beyond

£32,010 (before tax, including the £7696 salary)

PROFIT = GOOD!

WRONG!

Corporation tax is proportional to profit!

Quick recap:

Standard expensesThings your company pays for directly:

Salaries Rent Utilities Etc.

Step 6 - Expenditure

Reimburseable expensesBut wait! Only certain items can be reimbursed by

your company as business expenses, see 480 and 490.Key notes:

Business mileage in your own car can be reimbursed (without receipt) at 45p per mile (< 10000 miles)

Keep a record of every trip you make though Receipted travel and subsistence (hotels, trains) have to

declared on form p11d and self-assessment. Excellent explanation.

Get a dispensation to avoid the hassle. However for both of these you need to register your

company for PAYE.

Step 6 – Expenditure (2)

When you buy equipment your company does not incur a loss

Appears as asset on balance sheetHence, does not reduce corporation tax

liabilityAnnual Investment Allowance (AIA) for capital

expenditure: Equipment Software

£250000 for 2013/14

Step 6 – Expenditure (3)

Step 7 – Corporation Tax ReturnDecide on your company’s tax yearLogin to Companies House and change your company’s

accounting period to line up with your tax yearWait until the company’s tax year has finished…Login to HMRC and file your corporation tax return –

you will have an option to change the dates!Follow the process through and download form CT600Use the Joint Filing service to do your Company

Accounts simultaneouslyYour spreadsheet should have all the numbers you

need to complete the formSettle up the corporation tax due 9 months later

“I’m going to do my own accounts!”

Questions?

Presented by Tim Wicksteed

www.twicecircled.com@twicecircled

tim@twicecircled.com

Slides available at: http://www.twicecircled.com/resources/tools/accounting/accounting_for_freelancers.pptx