As a Contractor or Freelancer, managing your own finances can be a challenge, especially if you haven’t done it before. As experts in Contractor Accountancy, we’ve put together our top tips to make sure you understand the basics:
Get organised and go digital
With the introduction of Making Tax Digital for VAT, an appropriate computer package is essential to aid concise and effective record-keeping and to enable you to meet your Making Tax Digital and VAT obligations. An accountant can advise you on suitable software to meet your business needs.
Make yourself a budget
As a contractor, you need to ensure you have enough funds to cover any benefits you may have received when you were an employee such as sickness and holiday pay, plus pension contributions. You will need to make sure to set aside some money for taxes, insurance and other hidden expenses. Take a look at our Factsheets section for some handy resources.
Make sure you have a strategy for retirement
It is also essential to ensure that you put aside sufficient funds during your working life to allow for a comfortable retirement in the future. You could spend a third of your life as a retired person, and by taking action now, you can help to make this period as financially secure as possible.
Save for a rainy day or a sick day!
When you are a contractor work may not be guaranteed. There may be long periods of downtime or you may need a sick day – in which case you need to make sure you have funds to cover these periods.
Keep business and personal separate
Keeping business and personal expenses separate is vital. If you were to mix them up it may impact your ability to file Corporation Tax. Making use of apps such as 1Tap and online banking will help.
Understand what you can and can’t expense
If you are self-employed and carry on your business from home, you can claim tax relief on part of your household expenses, including insurance, repairs and utilities. You may also be able to claim for the cost of travel and accommodation when you are working away from your main place of business, so you should keep adequate business records, such as a log of business journeys. In addition to ensuring that your accounts are accurate, these records may also be requested by HMRC. Find out more about what you can and can’t expense here.
Tax & Year End Strategies
There are a number of tax benefits (business and personal) which freelancers and contractors can take advantage of. The Entrepreneur’s Relief (ER) and changes to Personal Allowance mean you could be taking home more money. Consult a specialist contractor accountant who can help ensure that you benefit from all the allowances and tax relief benefits available to you and help you plan a financial strategy.
Get professional advice to determine your capital allowances
‘Capital allowances’ is the term used to describe the deduction an accountant can claim on your behalf for capital expenditure, such as business equipment, in lieu of depreciation.
You can now claim ‘Annual Investment Allowance (AIA)’, ‘Enhanced Capital Allowances (ECAs) for energy saving equipment, ‘Writing Down Allowance (WDA)’, for some long-life assets.
You may also be able to claim tax relief on Research and Development (R&D) expenditure or where you have employed family members.
As part of your fixed monthly fee for our services, HD Contractor Accountants can help you with the timing of your capital and revenue expenditure to a maximum tax advantage. We can also help minimise employer and employee NIC costs and improve your profitability. Contact us today to sign up or find out more.