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As a freelancer you are also classified as self-employed. You do pieces of work for various commercial organisations rather than giving all your time to a single organisation. Generally, you don't provide services to domestic consumer customers.
The most common freelancer roles include web development & design, teaching & tutoring, writing & copywriting, creative & graphic design, admin support & assistance, language translation, web research, transcription, photography, customer service support and social media coordination.
As a sole trader you run your own business as an individual and you are effectively self-employed.
Example sole trader businesses include electricians, gardeners, private taxi drivers, decorators and plasterers who are all traditional trade and easy for a skilled tradesperson to operate.
They will mainly generate work from word-of-mouth marketing and provide direct services to domestic consumer customers.
As a contractor you typically work for one or two business clients at a time. You provide a service or complete a project on a contract basis. Contract stipulations, including the rate you charge are agreed before you start. Contractors generally work at their client’s premises and complete the work within an agreed time frame, although contract periods are often extended to meet project demands.
Contractor roles cover areas of expertise including finance, legal, banking, human resources, engineering, information technology, sales & marketing, operations and client services.
As a SME business (small to medium enterprise) you are privately owned, employ less than 100 members of staff (although this typically indicates you’re a ‘small’ rather than ‘medium’ sized business) and provide products and/or services to a range of different commercial or consumer customers.
Most SME business have a limited company structure, but some are established via a limited liability partnership.
Whichever category your work falls into, you essentially work for yourself or employ other people to deliver your services. You therefore have to take responsibility for your finances, which includes preparing accounts and various tax calculations such as VAT, corporation tax, PAYE, national insurance contributions and self assessment.
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As a small business owner, you’re always on the lookout for ways you can save money. Therefore, deciding whether you need to get an accountant can be a difficult decision—as that’s an additional cost that you’ll incur.
But managing your business financials well is central to your small business success—and that’s something that an accountant can help you out with.
If you’re still on the fence about this, here are questions that can guide you towards making a decision:
Here are a few things to keep in mind when you’re selecting an accountant:
Should you stick with your current accounting practices—or is it time to implement a new way of handling your accounting? Here are the signs that indicate it’s time to make the switch to accounting software:
Cash flow: Cash flow refers to the total amount of money that is moving in and out of your business.
Balance sheet: The balance sheet shows how much a business owns (assets), owes (liabilities) and the amount that is left over for its owners (owner’s equity) at a point in time.
Profit & loss (P&L): The P&L is a financial statement that shows how much money your business has made or lost.
Dividends: Dividends are a payment of profit that a limited company distributes to its shareholders. It is the money remaining after all business expenses and liabilities, as well as outstanding taxes (including VAT and Corporation Tax) have been paid off.
Year end accounts:
At the end of a business’ accounting year, limited company directors are required to file the following...
Director’s loan account (DLA): A DLA is is a record of all transactions between the company and its directors. It records not just the money owed by the directors, but also the money owed to them. At the end of the financial year, the amount is recorded in the balance sheet either as an asset or liability.
Benefits in kind: Benefits in kind are benefits provided to a director or employee that aren't included in their salary or wages. These can be assets or services, such as company cars, private health insurance or non-business travel and entertainment expenses.
Self Assessment: Self Assessment is a tax return form that businesses need to submit to report their annual earnings to HMRC. The term ‘self assessment’ refers to the fact that it’s the individual’s responsibility to work out how much tax they should pay.
Self Assessment payments on account: Payments on account are advance payments for your tax bill that are spread out across the year. You'll need to make two payments each year, and these are due on 31st January and 31st July.
P11D form: The P11D form is a tax form that records employment benefits that the employees and directors of a company have received across the year.
Most businesses need to submit their VAT return quarterly (this applies even if you don't have VAT to pay or reclaim). The deadline for submission is a month and seven days after the end of a VAT period.
Online returns must be filed by 31 January. Paper returns are due earlier, and must be filed by 31 October.
As a limited company director, you’re required to file the following:
Unlike limited company directors, sole traders aren’t required to file accounts with a public body.
As a sole trader, you don’t take a salary in the traditional sense; instead, you’ll pay yourself through sole trader drawings from your business.
If you’re a limited company director, you may pay yourself through taking a salary, dividends and pension contributions. Dividends may be distributed at any time or frequency across the year, as long as there is sufficient profit in your company.
‘Cash is king’ is an adage that holds true—particularly when it comes to small business finances. Even profitable companies are faced with the threat of closure, if negative cash flow becomes a regular occurrence.
Keeping a firm grip on your cash flow is key, and we’ve outlined a few tips you can implement:
Holiday pay is calculated based on a week's pay. The calculation will vary, depending on the kind of hours an employee works (fixed hours, shift work with fixed hours or no fixed hours) and how they are paid for the hours. We’ve elaborated more on this, as well as payment for overtime and commission in a separate article.
Entrepreneurs' Relief is a scheme that reduces the amount of Capital Gains Tax payable when you dispose of (sell) shares in your business. You pay a reduced tax rate of 10%— instead of the usual rates—on the first £10 million of gains. There isn't a limit to the number of times you can claim.
We have a wide variety of small business tax advice with guides on allowances and requirements whether you're self employed or running a limited company.
Explore our range of resources created by our team of expert accountants and advisors.
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