Registered as self-employed and ready for the next step? Well that step should include your business plan and getting your company prepared for invoicing.
As a freelancer, creating and sending invoices to your customer is what gets you closer to getting paid and essentially helps you earn an income and drive your business forward.
Invoicing is therefore a crucial part of your work as a freelancer. Your invoices should represent your brand, the image you would like your company to project, as well as professionalism and reliability.
But don’t let it overwhelm you just yet. Debitoor invoice software makes it fast and simple to create custom invoices with a personal touch.
So what does self-employed invoicing include?
The most important aspects of invoicing as a freelancer can be summed up in just two words: income & expenses. You’re probably familiar with these terms, as they’re the basic pillars of running a business. Staying on top of them is therefore a crucial part of ensuring your business has the resources to grow.
Legally, there are also obligations that go along with these two main elements of a business. Your invoices should meet the latest legal requirements, including VAT if you’re VAT registered.
VAT and your invoices
In the UK, sole traders can choose whether to be registered for VAT if their taxable turnover falls under £83,000 in a fiscal year. If your turnover exceeds £83,000, you are required to register for VAT.
There are a number of pros and cons to being VAT registered if your business turnover falls under the VAT threshold. VAT is an added charge on all sales. This means that if your business is VAT registered, you should add VAT to your invoices. It also means that you can claim it back when you file your VAT return.
To determine whether VAT registration is right for your business, we encourage you to do some research. We also have a blogpost to help you get started: ‘VAT registration: working with Debitoor’.
If you are VAT registered, the standard VAT in the UK is currently 20%. However, some products or services fall under either a 5% or even 0% VAT rate. Some examples that fall under the 5% rate include products to help in smoking cessation, energy-saving equipment such as solar panels, and car seats for children.
A few examples of products that fall under the 0% VAT rate include: publications such as books and brochures, and clothing for babies and children. To view the full list, visit gov.uk.
Income tax and personal allowance
Keeping track of your invoices is an important aspect of monitoring your income, and has an impact on your income tax.
Your personal allowance within the fiscal year is £11,000. Above this, the basic rate of 20% applies to all taxable income up to £43,000. A 40% rate is charged for income between £43,001 and £150,000, and then the additional rate of 45% applies to taxable income over £150,000.
You can look into income tax reliefs to find out if you’re eligible in order to pay less in income tax. There are also tax-free allowances for both savings interest, as well as dividends if you are a shareholder of a company. Married or in a civil partnership? You should also look into your partner’s income tax, especially if it falls under the personal allowance amount.
Expenses as a freelancer
The flip side of income? Expenses. Every business has them, and expenses are decidedly the less appealing of the two. Despite this, expenses play just as important a role in your business. Proper management of your expenses is crucial for understanding the operation and financial health of your business.
Your expenses are also subject to VAT rates. If you are VAT registered, you can reclaim the VAT that has been charged by suppliers, for example. This is a part of the VAT claim that you file with HMRC once a quarter (for freelancers and small businesses). The digitisation of tax aims to make this process faster and simpler moving forward.
UK accountant Steve Bicknell weighed in on this topic with a blogpost about what you can claim: ‘Self-employed expenses - What can you claim?’
Using online invoicing and accounting software
Accounting and invoicing software like Debitoor aims to simplify these two important aspects of running your business, giving you the tools to create and send invoices easily using our invoice templates, or even by providing Word or Excel invoice templates. But by using a programme like Debitoor, you can link these two processes to better stay on top of your business.
Not only can you design and send professional-looking online invoices, but it prevents you from needing to worry about calculating the VAT rates (it’s done automatically, right in your invoice template). It also allows you to register expenses and maintain an overview of your cash flow, and ultimately to have better control over your business.
Thankfully, programmes like Debitoor are designed specifically for freelancers and small business owners, with an ease-of-use and price to match.