Intro

Welcome to 15 Minute Freelancer, your snack-sized guide to being your own boss and building a business and life you love. I'm your host, Louise Shanahan. My LinkedIn bio says I'm a freelance health copywriter. But for the next 15 minutes, I'll be tickling your ears with practical strategies, behind the scenes stories, and nuggets o' wisdom so you can create a freelance business that works for you. Whether you're just starting out or you've been self-employed for a while, I'll be right here with you to help me navigate the ups and downs of freelancing life. So, grab a coffee relax and join me for 15 minutes of freelancing fun. Don't forget to hit subscribe! 

Louise: Hello, and welcome to another episode of 15 Minute Freelancer. Today, it gives me great pleasure to introduce a very special guest. I've done a few so episodes about various topics touching on freelance finances, but since it's such a huge and often quite scary and stressful subject, I thought it would be fun to get an expert on to give us some pointers. So I'm really excited to welcome Martin Brooks, who is an accountant at Gold Stag Accounts. Hi, Martin. 

Martin: Hi Louise. Thanks for having me on. 

L: Thank you for joining me. It seems like you're the accountant for just about every freelancer I know. I’m in lots of freelance groups and it seems like anytime there's a financial question everyone runs to get you. So full disclosure, I suppose we should say before we start that you are my accountant as well. So Martin's been working with me since I switched from operating as a sole trader to a limited company so I can vouch for his expertise, too. 

M: Thank you. 

L: Should we maybe say that this podcast shouldn't be construed as financial advice? Obviously you are qualified to give advice, I am not, but people should always get specific advice on their own individual situations shouldn't they?

M: Yeah, absolutely. Yeah. It's always good to get advice that's suited to your circumstances.

L: Yeah. And also, we're probably talking about UK-specific rules and things like that. So people will want to check their own country rules. 

M: Yeah, we'll talk about the UK specifically and it's kind of general advice, don't take it as gospel. If you've got an accountant, consult with your accountant.

L: Yeah, so it seems to me that a lot of freelancers get started in self-employment, because they love the work they do. Or they want to create a more flexible way of working, or maybe they had to leave a job and found themselves freelancing by accident. I think it's probably fair to say that very few get into it because they're really excited about doing their own accounts! And it can be challenging, because like I was saying before we got on the call, with finances and accounting and taxes, we don't always know what we don't know. And you worry about HMRC coming after you, and that can be really scary and vulnerable. So if someone is just starting out in self-employment, what do you think they should be prioritising when it comes to their accounts?

M: I think the first thing is using a separate bank account. So even if it's not a business bank account, which are mostly free these days anyway, like Starling, the first point is just separating your finances and treating it like a business. Because sometimes people use their personal account and it gets all mixed up. And it makes them more daunting. So that's the first thing I would do. And then the second thing would be to get some accounting software. Free Agent is really good. I mean, spreadsheets are great, but there's a lot of room for error, and you can't really see where you're at in real time. So yeah, accounting software, it'll just make your life so much easier.

L: Yeah, I mean, I have to say, I do love an Excel spreadsheet. And as you know, I'm not wanting to let go of it yet!

M: I mean, yeah, some people do actually use both. And that's not a bad idea. But nine times out of 10, you'll find the accounting software will be doing the job anyway. And if you use it for your invoicing, it will track your invoices and help you know where you're at. And it'll give you a tax estimate as you go along, which is quite important.

L: Yeah, it does make things a lot easier. I use Free Agent as well. And we should say there are other accounting softwares available. But yeah, most of them will do the same sorts of things, won't they, they'll help you with your invoices, help you track your expenses… 

M: You can set projects up as well. There's all kinds of fancy stuff. Some of it's probably overkill for most people, and a spreadsheet does do a good job. But I can't recommend using software enough to be honest. It's not too expensive. I think people think that it's going to be really expensive, but it'll actually save you time and money.

L: And I quite like the fact that your accountant can see it as well. So they can go in and check that you've not made any mistakes or answer questions and use that for your tax returns as well if they're doing that for you. So that's another bonus point, I think. 

M: Yeah, definitely. Just one more thing, I suppose. Obviously, I would recommend getting an accountant if you're starting out as a freelancer, because as you said earlier, you don't know what you don't know. And it could be things like claiming use of home or expenses that you're not sure of. Or maybe you're claiming for the wrong things that you could potentially get in trouble for later down the line. So I think it's good to have someone in your corner to begin with it. It’s another thing where people think that it's gonna be expensive, but nine times out of 10, that pays for itself as well. That's what I've been told anyway.

L: Yes. And it could be a very expensive mistake if you don't do that, and you try and do it yourself and something goes wrong. 

M: Exactly. You can kind of muddle through, and some people feel pretty confident doing it, but think it's good to have some support. 

L: Yeah, I think there's some value in keeping track of things yourself so that you know what the situation is, rather than just passing it all off to somebody else. But definitely having that expert input to make sure that you haven't missed anything is so valuable, isn't it? 

M: Yeah. 

L: So what would you say is one thing that you wish freelancers would not do when it comes to their finances? Is there a common mistake that lots of us are making?

M: My favourite one is don't listen to the bloke down the pub. The conversation will be “Oh, my friend or the bloke down the pub said, you can put this through or you can do this and avoid paying tax.” I think their intentions are probably good. But they're not a qualified accountant. So you should probably just stop listening at that point.

L: And the rules change sometimes as well, don't they? So what may have been true for them at some point in the past may not be true now.

M: Exactly. It's always changing, especially last year, during the pandemic, with all the schemes and grants, and everything was changing at such a fast pace. It's important to stay up to date.

L: Yeah. So I wonder if we could shift gear and think about how the structure of your business affects your finances. So lots of freelancers, maybe when they're just getting started, or maybe they when they've been in business for a few years, will wrangle with the question of whether they should set up as sole trader or a limited company. What would you advise people to think about when they're trying to make that decision? 

M: Okay, I think this is one that you need to talk to an accountant or a professional about, and just explain your situation. A lot of people, they will switch because they want the limited liability, from being a sole trader to a limited company. And then others will think about the tax savings, which usually is when your profits are around 30,000. It depends on your circumstances, where your business is going and how you want to be seen really. If you want to stay as you are and stay relatively small, then a sole trader might be the way to go.

L: Yeah. And I think it's important to make the point that often people think the difference between the two in terms of what it means for your tax obligations. But there are other factors as well, you know, maybe if you have other people working with you, you want to think about liability and not being personally responsible. Fingers crossed, hopefully it doesn't happen, but if something goes wrong in your business, you don't want to be personally liable for that. So that would be another factor, wouldn't it?

M: Yeah, that's a good point. When you go down the limited company route, there's more admin, and some people are put off by that fact. But again, if you get an accountant, they’ll handle all of that for you anyway 

L: And does it affect any other decisions that you might make, you know, if you were looking for a mortgage or anything like that, does it play a role there, too? 

M: Yeah, definitely. It's good to get a couple of years’ books under your belt when you go limited. So if you are thinking of getting a mortgage, then it's definitely worth waiting. 

L: Okay. One of the other big concerns that people might have when they're starting out freelancing, or again, if they've been doing it for a few years, is the lack of benefits and financial support compared to being in an employed position. And obviously, applying for a mortgage might be one of those things. It's not impossible, obviously. But it could be a little bit more complicated. But how should freelancers plan for things like holiday pay and sick pay and parental leave, and pensions and things like that? 

M: There's a few articles online, I think IPSE has got quite a good guide on their website. I know it's hard at first, especially when you first start out, but creating a buffer that can account for the rainy days or if you needed a sick day. And also things like income protection insurance, because you don't get those benefits as a sole trader. 

L: I know certainly for holiday pay, you’re conscious that if I'm not working in this time, I'm not going to be making money. So if you can find a way to smooth that out, then it will be easier to take that time off, or like you say, if anything unexpected comes up, you can kind of ride out. 

M: Yeah. 

L: And I think when people are setting their rates as well, this is another thing that you need to be factoring in. It's not just the work that you're doing, or the time that you're spending on the project, you're running a whole business, and that includes all of these things as well. 

M: It's really important. I think for people that are starting out, it is really hard. I've been there myself when I started out. You can't always have a buffer, but it's something that you can definitely grow into. So it's kind of a long term goal that you should aim to.

L: And what about pensions, because that's maybe a little bit different. How do people plan for the future? What are some things that people might be thinking about from your point of view?

M: People are starting to get really wised up on pensions. There's a lot of do-it-yourself pensions, like Penfold, Pension B, Nutmeg – pension providers where you can kind of set up yourself quite easily. Obviously, I'm not pensions advisor. But if you're a sole trader, then it's important to be paying into a pension either by using one of those providers or seeing an independent financial advisor that will get you set up. 

L: Yeah. Okay. 

M: And also, with a limited company, obviously, you can pay into a pension from your limited company as well. And that will reduce your corporation tax. So it has its benefits both personally and for the business.

L: Yeah. Okay. That's a good point. Thank you. So let's talk about taxes, everyone's favourite subject. What are some common pitfalls that freelancers should be aware of when it comes to paying their taxes?

M: There's two really. The first one is not really putting any tax aside. Some people choose not to, but I don't feel that's a really good idea. It’ll catch up with you again. So I always recommend if you're a sole trader putting 30% away of each invoice, because then you'll always have more than enough and hopefully, one day, you'll be able to use the extra that you've saved towards a holiday (once we're allowed to go!). The other one is payments on account. They catch people out. It's horrible to see. You try and warn people as early as possible, it kind of hits you in the face like a shovel, you know, “I’ve got to find this money”.

L: Can you give us a very quick explanation of what payments on account are in case anyone's listening and they're thinking I don't know what that is?

M: Yeah, so if your personal tax is over £1000, HMRC predict that your future income will be based on at least that in the future. So they will charge you that in two instalments as well as your current tax bill. So on the 31st of January, as well as your tax bill, you'll have the first 50% of the following year to pay on top. And then you've got until the 31st of July to pay the second 50%.

L: Yeah, I suppose in a way, it's nice that HMRC are so optimistic about our future earning potential!

M: Also, it's worth pointing out actually, especially after last year, where your income can fluctuate a bit, you can opt to reduce these payments on account. But HMRC will charge you interest if you reduce them too much. So you have to be careful. It's good to kind of see where you're at. Because when you do your tax return, and you enter the next financial year, if it's not looking as good, then you can look at your tax return and you can look at reducing those payments on account.

L: And is it better to file your tax return straight away as soon as it opens up, or wait till the last minute?

M: Oh, I think as soon as possible. Just knowing where you're at and what you've got to budget for. And if you have been putting tax to one side, then you know, “actually I've got this spare cash, I can go on holiday or I can buy a car, or I can put some money into a pension”. It just helps you keep on track with your budgeting as well.

L: Or even if you file the return straightaway, so you know what you're going to owe, but you don't pay it until near the time, that's always an option, isn't it? 

M: Exactly. Give yourself some time to save up if you haven't got quite enough set aside. 

L: Yeah. And are there any major changes to self-employed taxes that we should be aware of this year, either for people operating as sole traders or limited companies?

M: No, there's nothing this year, all personal allowances have been frozen until April 2026. So that basically means your taxes aren't going to increase or decrease until at least then. The self-employed fourth grant is currently open. People will have been informed if they're eligible. 

L: This is for pandemic support. Right? 

M: Yeah, this is the pandemic support. So the self-employed income support grant, the fourth one is out now at the moment, and then the fifth and final one – potentially final one, they do keep getting extended. So at the time of this, it's the last one. That opens up, I think it's in June sometime. 

L: And people will be contacted about that if they're eligible, or they can look at the HMRC website. Is that right?

M: Yeah, they will be contacted directly if they are eligible. So it's good to have a look and see your eligibility. The general sense is that it's going to be a lot stricter, this final one. So the grant will be capped at £7500 for those whose turnover is reduced by 30% or more.

L: Yeah. So I wonder just to finish off, do you have any other words of wisdom for people?

M: I’ll sound like a broken record. But just use a separate bank account, get some accounting software and get professional help if you can. 

L: If in doubt, ask your accountant. 

M: Exactly. I mean, you can even have kind of discovery calls with accountants. Most accountants will give you a bit of their time. Just arrange a few calls to see if you get a good feeling.

L: Yeah, that's a good point. Well, that feels like a good place to end. I know I've got loads of notes from this conversation. I'm sure it's been really helpful and reassuring for people listening. If people want to connect with you or find out more about what you do, where can they find you?

M: The best place is probably my website. It's goldstagaccounts.co.uk. But I'm on all of the social media channels like Twitter, Instagram, LinkedIn as well. 

L: Okay, great. I'll put links into the show notes and then people can connect you and bring their questions to you directly. 

M: I hope to see you there. 

L: Okay. Thanks, Martin. 

M: Thanks for having me.

L: And thanks, everybody, for listening. We'll see you next week. 

Outro

You've been listening to 15 Minute Freelancer with me, Louise Shanahan, freelance health copywriter and content marketer at thecopyprescription.com. If you enjoyed this, please hit subscribe, leave a review or share it with a freelance friend. And if you've got a freelancing question you want answered on the podcast find me and say hi on Twitter, LinkedIn or Instagram. Thanks, and until next time, happy freelancing!