Like many new freelancers, I never saw the need for an accountant when I was starting out. Hiring one seemed like an unnecessary expense, a luxury that I couldn't afford. In my ignorant mind, creativity and business just didn't mix. I've now come to realise that they aren't mutually exclusive, and that having an accountant was literally something I couldn't afford not to have.
Freelancers' tax can get pretty complicated, especially when you have an international client-base. While it's all-too-easy to simply send out invoices, collect the cash, and not worry about taxes until April, it's not a functional way to conduct business - yes, even us freelancers are a business! I always thought that a record of my invoices in a nice ledger or Excel spreadsheet would suffice. Oh how I was wrong... There's a reason why the accountancy profession is such a specialised craft.
It wasn't until I received a phonecall from Skatteverket (the Swedish equivalent of HM Revenue and Customs) in January that I realized my financial records were a complete mess. I was going through a dry spell with work at the time, so when they handed me an invoice for over 13500 Swedish kroner (around £1200), with only 30 days to pay, I literally had to beg them give me a break. Fortunately they understood my predicament and set up a monthly payment plan. Throughout the ordeal there was one thing that they kept telling me "You really need an accountant."
Learn From My Mistakes!
My grandfather was a notorious tax evader, ignoring demands from HMRC for so long that they eventually wrote off his entire backlog of unpaid taxes. While a great man, with a kind heart, he certainly wasn't the best role model when it came to business. Unfortunately, his lax attitude rubbed off on me.
The damage... Two late VAT declarations equating to 1250 Swedish kroner (the equivalent of around £110); unclaimed VAT equating to over £500; and unclaimed deductions from operational equipment (computer, telephone) somewhere in the thousands. While you're probably reading this and thinking, "what an idiot" - I certainly feel like one - I urge you to learn from my mistakes and get some help before you're lumbered with bills and penalty charges. Had I not secured a long-term position as a script writer, my entire business would have collapsed overnight.
What's worse, this is just the tip of the iceberg. I've been freelancing for over four years and dread to think about how much money I literally threw away, just because I wasn't willing to set aside a few quid each month. I will never know the final total of my losses, but when I take penalties, conversion charges and unclaimed deductions into account, the figure will almost certainly be in the thousands. My advice to you...
1. Consider Getting VAT Registered
If you use an intermediary to acquire work - such as an agent or freelancing website - and have to pay them a commission, or if you primarily work with overseas clients (outside of the EU), get yourself VAT registered. While you will have to charge VAT on orders within the EU (which may make your services more expensive), you will also be able to claim back a percentage of your expenses. Therefore, if the VAT you pay exceeds the VAT you charge, registering will be a more lucrative option. Since most of my clients are based outside of the EU, I am already scheduled to have a hefty VAT rebate at the end of the financial year.
2. Keep Your Books In Order
There are literally hundreds of open source accounting programs available. Until recently I used OpenOffice to manually create invoices and spreadsheets, but did most of my billing directly through PayPal. Nothing was automated. I started using Freshbooks to bypass PayPal fees, which were equating to around three percent of my gross income.
If there's one thing I've learned about bookkeeping, it's that software will highlight trends in your method, allowing you to consolidate waste before giving it the purge. In my case, this was PayPal fees. When you've found a tool that you feel comfortable with, get yourself on damage control. Andrew Charles at Sochall Smith sums it up perfectly, "investing in systems that allow businesses to mine their data for useful information can not only increase sales and profitability but can also help to eliminate waste and inefficiencies." You may be working in a creative field, but on paper, you're still a business. And pinpointing problems is the only way to sustain that business for the long haul.
3. Find a Specialist
Choose an accountant that speaks your "language." The art of accounting is extremely broad, so you will need a specialist. When I started searching for an accountant I managed to find someone in Gothenburg who specialised in freelance expats from the United Kingdom - quite the niche! Look for someone who not only understands your situation, but is willing to educate you about it. Remember, you are a team; you can't expect to simply hand over your invoices and reap the benefits. You still need to have an understanding of the process in order to keep your books in good standing. ¨
As freelancers, we need all the money we can get. Each day we spend on numbers is another day we don't spend on revenue generating activities. And that's not to mention the draining affect it can have on our creativity. We've chosen a difficult career path that's often scary and unstable. Time is our most valuable commodity. It's priceless. Don't waste it!Suggest a correction