"Financial Aspects of Freelancing"

An oft-quoted proverb - sometimes ascribed to Thomas Jefferson, the 18th Century American President, Ambassador and Statesman - has it that "nothing is certain but death and the taxes". Obviously one can't prevent death, only delay it by adopting a reasonably healthy life-style and taking steps to avoid unnecessary exposure to danger.

Likewise with taxation - few of us with any worthwhile income can hope to avoid some of what is known as "direct" taxation, i.e. on salary, wages, dividends and the like. However, with careful planning of one's tax affairs one can minimise one's liability to direct taxation. Perhaps this is why the previous Conservative government, with its commitment to low rates of direct taxation, saw fit to pile a burden of "indirect" taxation on our long-suffering nation, such as high rates of Value Added Tax and the latterly-introduced Insurance Premium Tax and Airport Departure Tax. For the Treasury these taxes have tremendous advantages, not least that their collection is made respectively by suppliers of goods and services, insurance companies and airlines. In addition it's not easy to avoid indirect taxation unless one is prepared to step outside legality.

This book, of A4 size and about a quarter of an inch thick, sets out to guide the computer freelancer through the financial maze facing all of us who have taken the step to "go contract". Its authors are Barry Whiffin and Joanne Berry, partners of B.W. Whiffin and Co., an accountancy practice with over 25 years' experience of handling the taxation affairs of computer freelancers. There are many guides to freelancing - some good and some less good. From reading this one their experience of the contract business is obvious.

Aimed at first-time and established freelancers, the book starts with an analysis of the contract market and the reasons for adopting this method of working. Relationships with end-clients and agencies are explored, including contract terms and rates. Like most accountancy firms they recommend operating under a Limited Liability Company. Interestingly, it warns against operating an off-shore company, though gives no clear reason why.

The bulk of the book is devoted to formation and operation of Limited Liability Companies. The relative merits of purchasing an "off the shelf" company from a Company Registration Agent and having one's accountant form a company tailor-made for one's requirements are discussed, as are choosing directors for the new company. Registering the company for VAT, notifying the Inland Revenue and setting up a Pay As You Earn scheme are all clearly explained.

Naturally they recommend using a firm of accountants to handle these matters rather than doing it oneself. No sensible person would undertake do-it-yourself dentistry, so it's surprising that some freelancers attempt to save money by handling (usually forgetting) their own tax affairs. They usefully give a list of points to help a freelancer choose a good accountant, something that isn't easy for the lay person. This brought to mind the case of a freelancer of my acquaintance some years back. On setting out the modus operandi to her father's accountant the dear old gentleman was perplexed and couldn't understand why she didn't want to join the client's permanent staff!

Accounting records and possible business expenses are dealt with in surprising detail, considering the nature of the book. What sets it apart from its rivals is the set of 22 appendices, each being an example of statutory and regulatory forms that may have to be dealt with by computer freelancers.

The writers warn against the propensity of the Inland Revenue to undertake more and more investigations of tax returns. As they can reopen up to six years' tax affairs it's possible for one to be lulled into a false sense of security, only to be faced with demands for extra tax, interest and penalties. Luckily it's possible to insure against the cost of fees arising from Inland Revenue investigations and the authors tell you how.

Finally the book touches on the subject of pensions and insurance, recommending that freelancers take advice from independent financial advisors (sometimes referred to as IFAs) rather than tied agents or authorised representatives of a single insurance company.

The accounting aspects of one's activities can be a dry subject at the best of times but this book is well-written, interesting and keeps the reader's attention. Though I've been freelancing for over 20 years I found plenty of things I didn't know and plenty to think about. As a result I'll certainly be having detailed discussions with my own accountant!

"Financial Aspects of Freelancing" may be obtained free of charge from B.W. Whiffin & Co., 90 High Street, Kelvedon, Essex CO5 9AA. You may also order a copy by telephone on 01376 570171, by fax on 01376 572200 or by E-Mail When ordering, please quote the reference "The Eileen and Brian web site".

© Brian Smith 1995- 2006

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