A large part of being self-employed, or a freelancer, is taking responsibility for all relevant legal, financial and governmental business requirements for your own work and payments. When shouldering all the above, as well as your own duties which are job specific, life can become quite overwhelming and errors may be able to creep in. This is one big reason why freelancers and the self-employed all over the world seek out the assistance of accounting services to make the financial side of their work-related affairs more bearable. In just a few minutes of reading, find out all you need to know about accounting services for the self-employed or freelancer.
Distinguishing between “freelancers” and the “self-employed”
In the legal sense, freelancers and the self-employed are the same thing. However, there are a few key differences that you should know about if you are confused. Where freelancers usually work on various short-term projects for multiple businesses, self-employed people are typically entrepreneurs who start up their own businesses.
The most prominent difference between the self-employed and freelancers is the way in which they works. Freelancers, in most cases, work alone on a specific project for a client – usually charging a set or hourly fee. On the other hand, self-employed people usually work through a registered business and typically bring in employees to undertake their work. When it comes to paperwork and legal status, however, both freelancers and the self-employed are the same. Because of this, the terms “self-employed” and “freelancer” will be used interchangeably.
Freelancers and tax
There are few finance professionals who will not agree that freelancers usually have a difficult run in terms of tax. You are alone in the tax environment, which is likely much more complicated than you imagined before launching your business or private endeavour. For regular 9 to 5 working individuals, a pay check arrives sometime during each month with a neatly deducted amount that goes straight to SARS. They must simply submit a return to SARS once a year and that’s the end of the story in most cases.
For the self-employed, however, it is a different story. When it comes to admin work like tax, freelancers are faced with various hurdles that they must learn to overcome in order to avoid making tax errors that could cause severe issues down the line. We have compiled a list of some of the most common tax issues (and benefits) of which the self-employed should be aware:
Surprisingly, one of the most common problems is not being registered for tax at all in the first place. For freelancers, running a business is a full time occupation, and oftentimes admin such as registering for tax gets left in the dust and buried under the pile of other pressing duties. When work begins to come in as you start up, it is often in such small amounts that you may be encouraged to feel as if your endeavour will fall under SARS’s radar. However, as your business grows – so grows your bank balance. At the same time, the increase of admin and unpaid tax grows too. Que the sleepless nights and fear of consequences from SARS.
Much to the dismay of many freelancers, this is not an issue that can go away by itself. It requires a proactive attitude, and a trip to a SARS office (most likely accompanied by a wait in a long line). For this visit, be advised that you will need:
- ID document
- A bank statement
- Proof of address
Once registration has been completed, most of your other tax concerns can be dealt with through the SARS e-filing service. Depending on your financial history, you may need to pay penalties, or not (should you apply for the SARS voluntary disclosure programme).
Registering for tax should not only be thought about as a legal requirement as a freelancer. For many freelancers, there may be a considerably financial benefit. Most freelancers will have become familiar with the pesky 25% tax that is withheld by clients on specific jobs. To explain, that 25% is in fact tax that is prepaid to SARS based on what you would likely end up paying during the course of the year.
Essentially, SARS anticipates that you will pay 25% of your earnings every year so that amount is held back. However, each business is different, and some businesses have expenses that are in fact tax deductible. This means that there is always the likelihood that when you file your return at the end of the tax year, you may receive some money back!
Choice of taxpayer type
When you register your business, there is a rather pressing decision you must make – that of your taxpayer type. Businesses can take a variety of different forms. It could run as a company or a sole proprietor, as two examples. The benefits one can reap from these options depend on the nature of one’s business, as well as the types of expenses and turnover.
SARS has introduced a number of tax regimes that focus on smaller businesses and freelancers, such as the “Small Business Corporation” and “Micro Business” regimes. Both simplify tax rules and lower tax rates for smaller businesses. There are various of tax payer types from which to choose, and the right option for you can lead to great savings.
Should you opt to make use of accounting services from a trusty accountant, you will be expertly advised as to which option is the most beneficial for your individual case. There are lots of options which could lead to serious savings. But none of these are possible if you fly under the radar and ignore your tax requirements.
Once in the tax system, the ultimate goal is to pay as little tax as absolutely possible. In order to reduce your overall tax bill, there are specific business expenses that can be deducted from your income. Some of these tax deductions include:
- Computers or electronics you use every day for work
- Studio or office rent
- Travel for business purposes
- Phone bulls
All the above may count as tax deductions. Should you not be registered for tax, you will be paying your (rough) 25% tax and at the same time will not be claiming any deductions – meaning that you will in fact be losing money each month. However, should you be properly registered and on the system with SARS, you will be playing less to SARS in general.
Value Added Tax (VAT)
VAT is a tax on the supply of specific services or goods. A business is only required to register as a VAT vendor if they gain a turnover of over 1 million South African Rand during a 12 month period. If you are reading this and find yourself in this bracket without being registered, it is advised that you consult a tax practitioner as soon as possible. VAT registration has one main benefit – that being that you might be able to claim back money that you yourself have spent on VAT while bringing in supplies to your business.
However, one disadvantage is that you may have to charge the current VAT rate (14%) on your fees to clients and customers. Ultimately, the decision to register for VAT is one that comes with weighting up the potential benefits and disadvantages. It is always a good idea to seek out accounting services in the form of advice before you make any final decisions.
As a freelancer, one benefit you enjoy is the ability for you to work from almost anywhere – even outside of our country. However, some countries may insist upon you paying tax if you are working from there – and unfortunately – SARS might still want its share. Should you be contemplating moving overseas or visiting for a long period of time while still operating your service, it is a good idea to seek accounting services and receive some advice on the matter from a reliable accountant.
Why seek out accounting services as a freelancer?
As you may have gauged from the above information, there is more to accounting than submitting tax return once a year as a self-employed individual. Add sending invoices to clients, filing other tax documents, maintaining license requirements as well as documenting each and every financial transaction – and you may find that the world of accounting can be unfriendly to some. It therefore makes sense that freelancers so often seek out accounting services to make their lives easier and allow them to perform their work optimally.
Here are some benefits that come hand in hand with seeking out accounting services as a self-employed individual:
It is nearly impossible for the self-employed to find the time to keep up with the latest rules and regulations (that are seemingly ever-evolving). If you neglect to do it, however, you could be losing out on some benefits that could lower costs and increase revenue. When you seek out accounting services, you will be enlisting the help of an experienced professional whose job is to be intricately familiar with financial rules and regulations, and the never-ending story of SARS.
This can only benefit your endeavour. Your accountant may act as an advisor and provide invaluable information to streamline your financial processes and make sure that you are never unknowingly getting the short end of the stick. Should you enlist the help of a firm like SureBooks, who specialises in small business accounting, you can rest easy knowing that your company’s finances are in great hands and that all your important decisions will be informed.
Accurate to the last detail
Having a perfectly accurate overview of your self-employment earnings, overall financial health as well as tax obligations is crucial to the survival of your business or endeavour. When you enlist accounting services, you can say goodbye to the fear of misrepresented figures that will mislead you into making irresponsible and unwise decision. Further, receiving accounting services during tax season means that you will encounter little to no documentation errors that could get you into trouble with SARS.
Future in mind
With a reliable accountant at your side, you will know exactly where your business will be in a few years’ time. Accounting services include financial planning as well as business planning and predictions, which means that your accountant will be able to give you a good idea of the trajectory of your current endeavour, as well as offer valuable suggestions to ensure that you get there as successfully as possible.
Should you be thinking of starting an self-endeavour or business, seeking out the advice of your trusted accountant can aid you to build a strong foundation for your business that could help to ensure its overall success and prevent failure as a result of making ill-advised decisions.