There are two types of people; those that become pseudo tax-pros in January, and those that hire an accountant. But is seeking professional help really the best option?
There’s a fun game I like to play with my freelance friends. It’s one of those hypothetical situation games, like “if you could have any superpower, what would it be?” types. It goes like this: if you were wealthy enough to afford a member of staff, what member of staff would you get?
It’s a great game because it forces you to imagine a world that’s maybe not too far away from where you are now. You could conceivably have a good enough year where you could be in a position to think “hey, I’ll get someone to take the load off, so I can continue to thrive!” Also, it makes you confront the kind of person you really are, deep down. I encourage you to play this game!
However, whatever you do, don’t choose “accountant”.
I sort of get it. Every January, the clamour and anxiety around doing taxes begins to bubble up in the freelance community. People ask questions like “what the hell is cash-basis?”, “am I a sole trader?”, “can I expense this lunch? It’s really good.” A swirl of misinformation abounds from all sides to the point where many people, mid-month, will cave and begin to search for somebody else to do it for them.
For some, it might make sense. Maybe you’ve smashed it and pushed yourself over the VAT threshold. Maybe you are dealing with a year where you went freelance half-way through, and so have to account that against a couple months of PAYE. Maybe you just learned what “payment on account” means, and are worried you’ve not been putting enough aside. These are all legitimate concerns, but should we really be putting ourselves under this much stress? What is causing this worry?
Speaking to a tax inspector at HMRC, who’s asked to remain anonymous – we’ll call them Andrea – they say that often, people’s tax affairs aren’t nearly as complicated as they might think.
“For the people that work as sole traders, it’s literally just money in, money out. The only complication is the occasional expense that you’re not sure is allowable or not. Other things that might cause slight complication – mileage, or things that have to be proportioned – that’s easily uncomplicated just by keeping good records of what you did, when, and why.”
The question of expenses can seem a little muddy, but it doesn’t have to be. In full-time employment, you don’t baulk at the idea of being paid to go on holiday, being allowed a sick-day, or even claiming back a train ticket. The principle is the same.
There are certain things you need in order to do your job, whether that be steel-toe-capped boots if you’re working on a building site, or a guitar if you’re a musician. This doesn’t mean you can ask HMRC to pay for your Netflix subscription or buy you a suit. Most of it is really common sense. For the stuff like gas and electricity, if you work from home or a portion of your phone bill, then there’s advice on gov.uk that will answer this for you — for the former, the calculation is dead easy.
But ok, maybe it’s not a case of complexity. Maybe, it’s a financial decision.
One of the most common reasons for getting an accountant seems to be that it will save you money in the long run, through exploiting loopholes or tax-breaks that your average layman wouldn’t know about. Possibly this is true on a larger scale, if, say, you wanted to keep your income under a certain threshold so you didn’t get bumped up into the next tax bracket. Or you have started to employ people yourself. But, by and large, it doesn’t wash.
Andrea again says:
“If you’re a simple, one-man-band creative, who’s willing to maintain decent records — you’re not earning huge money, you’re not working overseas — there’s not much value in getting an accountant if you’re willing to do these basic steps.
“If they’re not ripping you off, and they’re just doing basic stuff, an accountant will cost you a couple of hundred quid a year, but they won’t save you anything because your level of tax won’t be high enough to justify it.
“Also, you’ve got to be careful with the accountants you get. There are lots of ‘tax agents’ or ‘tax consultants’ out there who aren’t qualified, chartered accountants. If they get things wrong, and they do, often, it doesn’t come down to them, it comes down to you.”
There is enough anxiety in being a freelancer already. We have to chase invoices, scrabble for new work, multi-task deadlines. We don’t have the luxury of a company pension, sick pay, or a holiday allowance. At times, it can feel like we’re on call 24 hours a day, seven days a week.
If we want to manage that anxiety, we need to focus on what’s in our control. There’s that old adage: If you want something done right, do it yourself.
Hiring an accountant may feel like it’s money well spent, but when you start doing the basics — keep receipts, put a percentage of your earnings into a separate bank account — then the January deadline won’t seem so stressful, and you won’t need to hire anyone. That’s what’s going to save you money.