Post #1 – setting up, billing and record-keeping
Setting up
Firstly, consider whether you want to earn more than £90k p.a. – if you do, you’ll need to register as a business and charge and pay VAT. Unless you are very senior and can command genuine consulting work at larger fees, then £90k is quite a lot of money. If you think you’ll get to this sum within a few years it may be worth considering setting up a company, as the addition of VAT to your invoices won’t then be a surprise for existing clients.
My feeling is that payment or non-payment of VAT is unlikely to be a big factor for charities in deciding whether to work with you, but other people may have different views on this. I do find myself making a bit of a virtue about not having to charge VAT so, make of that what you will…
For most people, especially when starting out, the sole trader route may be more appropriate, particularly if managing your work-life balance is important to you – see blog post #4 for more on this.
Charging
I charged 40% less for my first freelancing assignment than I typically charge now. That’s not because my offering has changed significantly for interim roles, but my understanding of what will be considered reasonable by charities for my 25+ years of fundraising experience has changed. Put bluntly, I was undercharging at first. But that’s ok – I learned from this, got glowing reviews for my initial engagements and developed my confidence.
Think about what level of flexibility in charging works for you too:
- I charge less for small charities (under £1m p.a. turnover)
- I typically charge a lower day rate for long-term assignments, acknowledging the security of income that this gives me
- I charge a higher rate for consulting where I’m delivering advice and supporting the development of fundraising strategy
- I am also happy to charge less for my work tutoring fundraising apprentices with JGA Group because I absolutely love it and I’ve been doing it for three years now (and Further Education providers are typically running pretty low margin businesses when all the costs are taken into account)
Billing
Never accept 30-day payment terms (which are standard in many charity contracts)! This is a killer if you’re working primarily or exclusively for one client, and they happen to be late in paying – even by a week. The rent / mortgage payment waits for no man! (Explain this politely, but dig your heels in on this point…) None of their other staff are being paid a month after having done the work!
Record keeping and tax
Given the generally messy state of my house, I have surprised myself at the quality of my record keeping!
Because my tax affairs are very simple, I really only have a few categories of data to stay on top of:
- Invoices issued and payments received with dates of payment;
- Costs incurred (including a separate note of any direct costs incurred on behalf clients and included on invoices which need to be removed from earnings for your tax return);
- Pension payments made into your own plans (again, to ensure you receive full relief);
- Gifts to charity (which attract higher rate tax relief);
- Interest on cash in bank accounts (non-ISA) as you’ll pay tax on these small amounts
I have worked for clients on their payroll at their request and it does get a bit messy to be part-PAYE and part self-employed. Ideally, I would bill all clients to avoid confusion with HMRC, (though it was nice having paid holidays and pension contributions briefly again!)
You’ll pay tax twice a year as a self-employed worker, on January 31st and July 31st and you’ll know a year or so in advance what your upcoming amounts to pay are. I keep funds in an ISA to pay the taxman and make sure there is a reasonable buffer in case of lean times for a couple of months…
If you are having a good year, be aware that the £90k threshold (after which you must become a business and charge VAT) is a rolling 12-month period, rather than a tax year, so keep checking this month on month too.
I ask an excellent firm of accountants to submit my returns for a few hundred pounds, but you really don’t need to. I have done my own returns and it’s not difficult. Every year I think about whether to do it myself but decide to go down the accountant route because I reckon the tax man will be less inclined to audit a professionally produced set of accounts (not that I have anything to hide, I should add). Also, the accountants will know about tax reliefs and treatments and changes in the law that would pass me by, so I chalk it up as another business expense for the following year.
Next week, I’m going to share what I’ve learned about getting work and securing repeat business…
joelvoyseyfundraising.uk 