Tag: tax

The taxman cometh (5)

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Choosing your accounts software

To err is human, but to really foul things up requires a computer - you’ll remember that adage if you are of a certain age. But the reality is that these days we all need to do our accounts on a computer. That means choosing what software to use.

The first thing is to check with your accountant what they are used to working with and what they recommend. You want to be able to hand your accounts over electronically, either on a disc or by email.

 Simple or complex?

You also need to bear in mind how complex your accounts are likely to be. Most lone freelances with basic income and expenditure accounts can probably manage with just inputting the numbers into a spreadsheet under the right headings. That probably simply means Microsoft Excel or something similar – that comes as part of the Microsoft Office suite.

You might prefer something that can handle more complex data – certainly worth it if you are planning to be busier and expand into new ventures or operate as a company. You might need to buy an accounts package, such as Quickbooks or even Sage.

Many accountants are happy to receive files in these formats. Sage is the sort of package big businesses use – and can manage payroll, for example – though small business versions are available. But Sage is far from intuitive – I find it almost impossible to understand – so only go down these routes if you are prepared to devote time to learning the intricacies of the software or ready to pay someone to do your book-keeping for you.

 Online solutions

The other option is to look at online book-keeping packages. Many accountants will now accept accounts in some of the formats available. The advantage of these is that they are free, or cheap, and you can update your accounts from any computer rather than having to be at the computer with your software loaded.

The downside is that they are often limited and you hear reports of them failing and data being lost. Having paid nothing or next to nothing, there’s no recourse if you need to complain. Check your accountant’s experience of the online services and follow their advice.

The taxman cometh (4)

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Choosing your accountant

Choosing the right accountant for you and your business is crucial. You need to be able to trust your accountant to do the best for you, to give you accurate advice and to present your affairs in an honest and accurate manner to the taxman.

Get it wrong and you may face the wrath of HMRC and full-blown investigation into your affairs, in which you will be expected to produce all your records going back years and you may be expected to justify each and every item of spending.

My first recommendation is that you choose professionally qualified and regulated accountant. In effect that either means an ACCA-qualified accountant or, more likely, an ICAEW-qualified accountant. ACCA and ICAEW are accountancy institutes that not only set qualification standards but regulate their members. ACCA members are generally called certified accountants and ICAEW members are called chartered accountants.

"It's fun to charter an accountant.....and sail the wide accountancy" - Monty Python

Be warned: anyone can call themselves an accountant. Many are not qualified or only partially qualified. Only regulated firms come with any official guarantee and back-up – they must carry professional indemnity insurance, for example, to cover any errors or omissions they make.

It has been known for an accountant with a large entertainment-based clientele to come unstuck with the Revenue and have certain expenses challenged. This results in HMRC investigating every single client and demanding back payments of tax for exaggerated expenses claimed.

Why a chartered accountant?

Michael Izza, chief executive of the ICAEW, said: “When hiring an expert for any job, a client wants to know they are buying expertise based on quality, honesty and efficiency. It is also vital that the ‘expert’ is suitably qualified, has undergone the correct training and is subject to some kind of regulation to ensure a high quality of service.  This is true of doctors, teachers and lawyers, and ought to be for accountants too.

“Chartered accountants have all these qualities, and we want people to know that even in their day-to-day life our members can be an invaluable help in saving you money. You can definitely count on a chartered accountant.”

Before becoming a chartered accountant and using the designatory letters ACA or FCA, ICAEW members must:

  • undertake a period of at least three years’ training with an organisation that is authorised by the ICAEW
  • pass exams covering financial management, auditing, business strategy, taxation and IT
  • undertake a programme of Continuing Professional Development, which demonstrates their commitment to high standards.

The ICAEW said it also ensures that chartered accountants develop communication skills, business awareness and professional judgement.

Finding an accountant

To find a chartered accountant, the ICAEW provides a search function on its website (new window), which will list firms by name or location and by their specialist area.

But try to find one that others in your field use. They will know the rules governing your sector and have a good idea of what others like you have successfully claimed as legitimate expenses.

You may also want to think about whether or not you have ambitions to be more successful in the future. Some accountants handle thousands of similar clients sausage factory style – and that may be ideal as it keeps costs low.

But if you hope to be more successful and have a growing income, consider a slightly bigger accountancy practice with a broader range of skills and experience. It will be able to grow with you and provide new, different advice and accounting support as your circumstances change.

And spare a thought for the chartered accountant who really wants to be a lion tamer.

The taxman cometh (3)

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Get an accountant

Every creative freelance should hire an accountant to do their accounts and file their tax returns.

Many freelances refuse to pay an accountant, preferring instead to struggle through their self-assessment form themselves. Well good luck to you, if that’s you.

That’s exactly what the government wants you to do because it knows you will not be deducting all the costs and making use of all the allowances that you could have used. You will be paying more tax than you should have done and Chancellor George Osborne will be delighted.

I’m good a maths. I understand numbers better than most journalists (many of us think of ourselves as wordsmiths first and foremost). I’ve worked on several financial and accountancy magazines and websites. I’ve interviewed chancellors of the Exchequer, accounting standards setters and bigwigs in Her Majesty’s Revenue and Customs. But I pay an accountant to go through my books and put everything in order.

Pay for professionals

Actors hate it when non-Equity extras get used, when the am-dram queens think they’re as good as drama-school trained professionals. Journalists get riled when teachers get the job of covering sports matches or students get to write gig reviews, just because they’ll do it for the free entry ticket rather than charge a proper fee. We’ve all seen the well-meaning amateur make a hopeless hash of a job we could have done to a professional standard.

Well, it’s the same with accountancy. Being good at maths doesn’t make me an accountant.

An accountant will be able to do your accounts faster and more accurately. They will know the tax allowances that benefit you. They will know what expenses you can legitimately offset against your income and those you cannot. And they will know where to find answers to questions much faster than you can.

 Knowing the market

If you use an accountant who knows your sector and has other clients in similar lines of business they will know the specific schemes that operate in your sector – film and TV have their own rules, for example - and what others in your field have successfully claimed or unsuccessfully tried to claim.

And there is an additional benefit of using a professional accountant: should the taxman investigate and discover your accountant has got things wrong, you can sue your accountant – those regulated by their professional bodies are required to have professional indemnity insurance to cover just such an error.

Next: How to choose your accountant.

The taxman cometh (2)

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Paperwork

Organise yourself. Ask for receipts and keep them. In fact, file them – don’t just stuff them in a carrier bag to deal with later.

Handing over a shoebox of receipts to an accountant at the end of the year is a guarantee of a more expensive accountant’s bill and you paying more tax than you should have done. Good record-keeping will save you money.

It’s the easiest thing in the world to leave admin until later but it’s the hardest thing in the world to catch up months later. Try to schedule an hour a week or an afternoon a month to catch up with all your accounts and admin.

Keep a diary and make sure you check your receipts against trips out. Most of us can expect to have receipts for trains or taxis or petrol, plus some subsistence – coffees or lunches – as a minimum on a day out, but there may be other items too. Did you buy an important newspaper or specialist magazine that day? Did you get some photocopying done or buy some stationery or something for your computer? By checking your expenses against your diary you will spot missing receipts in time to find and file them.

Check your monthly credit card bill and bank statement. Is there any spending there that you have not included or for which you can find the receipt? Have you got the bill that’s been covered by a direct debit payment – often bills are no longer posted and you need to go online and print them out. It’s much easier to do this each month than to try and print out 12 monthly bills at the end of the year. If you bought something online have you printed out the emailed invoice?

It is often easier to have one credit card for business spending – but always pay it off in full every month. You can then include your credit card bill with your accounts as evidence of spending, even if you have misplaced a receipt.

But don’t shy away from cash if cash is the cheaper option. I have seen people in coffee shops try to buy their cappuccino by card, only to be told there is a minimum charge that requires them to buy a pastry too. There’s no saving there. Paying by cash and keeping the receipt is a better option, providing you are efficient enough to keep that receipt and file it as soon as you get home or back to your office

The key is being organised. Put in place a system that suits you – and stick to it.

 

The taxman cometh (1)

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Happy new year

Today is the first day of the new tax year (it runs to 5 April 2013). As of today you can earn £7,440 over the next 12 months without paying any tax.

But that is £7,440 after expenses. That’s after you have deducted the cost of travel, of equipment, of any studio time or other professional services you might have needed during the year. It’s after you have deducted the cost of working from home (if you do). It is even after you have deducted the costs of being a member of the appropriate union.

So April is a good time to start thinking seriously about how you keep your accounts, how you organise your financial affairs and how you operate as a business. That is key: as freelances, we are small businesses. When it comes to money we need to think of ourselves not as creative people but as businesses that provide creative services or products.

By the end of April I hope to have given you plenty of ideas about how you can make more of the money you earn yours by keeping better records and using the full range of tax allowances and benefits available to you.