Let’s imagine that – like so many other freelancers – you left last month’s self-assessment tax return a little too late. You seemed to get everything done in time, but now your bookkeeper has informed you that there were inaccuracies. The taxman’s penalty regime for such mistakes is just one of many reasons for getting Freelancer Accounting’s (http://www.freelanceraccounting.com) accountants for freelancers to help you with such a vital task. But what do you need to know if it’s too late?
Our accountants in Guildford would advise you that HM Revenue & Customs assesses penalties for incorrect returns on the basis of whether the error could be deemed negligent, concealment or a mistake. Failure to comply could land you with a £300 fine, or you could even end up paying £60 a day if the error is not corrected. Tax-geared penalties exist for those that fail to comply in an attempt to pay less tax, while if you have gone as far as concealing and/or destroying documents, you could be in danger of a prison term of as long as two years.
You may want to disclose the error to HMRC of your own accord – a process known as ‘unprompted disclosure’ – or you may be the subject of ‘prompted disclosure’, which is when HMRC approaches you. In both cases, prospective clients of our accountants in Richmond should be aware that penalties apply, but that they are higher if the latter category applies. The exact penalty depends on the type of error that was made, which may have been careless, deliberate but not concealed or even both deliberate and concealed.
Voluntarily informing HMRC of a careless error is obviously the eventuality that will bring you the minimum penalty, with between 0% and 30% potentially needing to be paid by you. In the event of a genuine error, you won’t need to pay a thing, but if you failed to take “reasonable care”, a penalty at the higher end of that percentage bracket can be expected. Meanwhile, depending on the seriousness, telling HMRC about a deliberate error, but which you did not try to conceal, attracts a penalty between 20% and 70%. For the final error type, one that was deliberate and that you also tried to conceal, voluntary disclosure is likely to mean a fine of between 30% and 100% of the “potential lost revenue”.
As for cases of prompted disclosure, simply careless errors result in 15% to 30% penalties, with genuine errors leading to no penalty at all. Errors that were deliberate but that you made no attempt to conceal equate to a penalty of between 35% and 70%, while deliberate errors that you did try to conceal are likely to bring you a fine of between 50% and 100% of the “potential lost revenue”.
Here at Freelancer Accounting (http://www.freelanceraccounting.com), our small business accountants would also remind you that these above penalties can be simultaneously enforced, which is even more reason to seek our services to help to eliminate errors in the first place.
The first time somebody becomes a contractor there are ample opportunities for them to make mistakes. We have come across many types of freelancers and contractors over the years and perhaps the ones most likely to make these types of mistakes are the ones who know ‘everything about nothing‘. You will probably know the type, don’t let that be you.
Starting work without having a contract in place or getting the contract reviewed for IR35. Your client will often have a pressing need for your services and getting you through the door will be the main priority. A contract is necessary as it defines each party’s responsibility and the scope of the work, so any disputes can be easily resolved. Also it is a vital indicator of whether you are inside or outside of IR35 and ultimately what tax you pay.
New contractors often make the mistake of not making this mental separation, that the company’s money is not their own money. This can lead to problems such as VAT and corporation tax money being spent. Just because there is a positive bank balance it does not mean the company is solvent.
Expenses are an allowable deduction for corporation tax and you can only claim for expenses that are wholly and exclusively incurred for the purpose of your trade. If I had a pound for everyone who has attempted to put a business suit through their business and claimed they only wore a suit for business purposes I would be a rich man. Listen to your accountant and do not abuse expenses as HMRC will pickup on any expenses incorrectly claimed and fines and penalties will accrue.
Beware of any scheme which promotes take home rates of 85-90%, we have never come across one which we think will not come back and bite you, and we have seen a few people who have used them and have had years of trouble and stress from HMRC, if it is too good to be true then it probably is.
We often get contractors who have worked solidly for five or six years, and then through change of circumstance, such as change of location, look for an accountant nearer to where they are now located and talk to us.
We find these contractors will have been so busy they haven’t taken the time out to chat through their business with their accountants, and obvious tax savings have been missed and are now lost. Savings which are lost can run into the tens of thousands of pounds.
An hour chatting to your accountant per year, may be your most lucrative hour of the year.
Always use a qualified accountant or tax advisor, and be wary of any advice given to you by a colleague, friend or online forum. Yes use them to guide your questions but don’t take as fact what is said as it is likely to land you in trouble with HMRC.
With so many people now considering ‘going freelance’ rather than trying to compete for an ever-narrowing pool of conventional full-time jobs, there is also an increasing need for education on many aspects of life as a freelancer or contractor. Certainly, as important as it is to make use of the best-qualified accountants in London, like those of Freelancer Accounting (http://www.freelanceraccounting.com), in the management of your accounting and tax affairs, you’ll also need to ensure that a market exists for any new services that you offer.
Many new freelancers and contractors fail at even the most basic steps when they first go into business, with many of them confusing the terms ‘sales’ and ‘marketing’. For the sake of clarity, marketing involves the identification and reaching of certain segments of the population that may actually wish to invest in your products or services. There may be an overlap between the tactics used for sales and marketing, but the two disciplines are not the same.
The latter depends on a good standard of research of the existing market, so that you are aware in good time not only of your potential target audience, but also the basis on which they may choose products or services from you and for what cost. Contractor accountancy clients may decide that a market does not exist for their proposed product or service, or they may need to modify the service to suit demand. The right sales techniques are then used in the meeting of that demand.
There are all kinds of means by which those that use accountants for freelancers may market their business, in a world in which potential customers are constantly stimulated by wide-ranging online and offline media. The key to successful marketing lies in the identification of the most appropriate marketing channels for communicating the essence of your brand and services to your chosen audience. There is both an art and a science aspect to successful marketing as you pursue your target customers, with creativity being needed for relevant and attention-grabbing marketing and advertising, while interest and sales can be tracked by various sophisticated mechanisms.
Many forms of marketing exist that may be relevant at different stages of the life of a freelance business. These can include direct marketing, viral marketing, affiliate marketing, ‘social’ marketing and more. In addition to making use of the best accountants in Reading and beyond, freelance businesses are urged to keep abreast of the latest marketing developments, as well as pre-empting, monitoring and researching changing demands from their existing customers to ensure maximum customer retention.
Effective marketing is a vital part of the grand scheme of running a freelance business. By using the right techniques and taking advantage of specialist accountancy services such as those of Freelancer Accounting (http://www.freelanceraccounting.com), freelancers and contractors can better ensure the sales that give them a healthy turnover.