FREELANCERS GUIDE

A business handbook for successful freelancing

Contents Introduction
A great number of individuals are thinking of or have become freelancers, either by accident or design, for most this proves to be a life changing event . There are a number of highs and lows to being a freelancer, the positive aspects include flexibility over working hours; greater variety of work; increased job satisfaction & work challenges; autonomy and independence; improved work/life balance and increased earning power . The negative aspects of freelancing include no guarantee of work or income; greater degree of isolation and less human contact; increase in financial risks and exposure; increase in stress; and heavier workloads A freelancers life can be quite lonely and their experiences are akin to experiencing a roller coaster ride; for example busy work periods followed by quiet periods and feelings of optimism followed by ones of pessimism . Fortunately these days there are a greater number of support agencies that can provide aid and assistance to prospective and current freelancers either free or at affordable rates some of these agencies are quoted in the back of the guide . This pocket guide is based on Pro Active Resolutions extensive experience of the creative and business sector, and has been written for prospective and actual freelancers . The guide also contains extracts from articles that have been previously published in Arts Professional, the original articles being found at www.proactiveresolutions.com . The idea behind the guide is to provide an overview and an awareness of the major issues that a freelancer is likely to face, and thus supplement and support existing resources . We would like to thank Creative Leicestershire for reviewing the guide; contributing to the marketing section and the production of the guide . However, all errors and mistakes that slipped the proof reading net are Pro Active Resolutions . If you have any suggestions, comments or corrections, then please contact us via our website at www.proactiveresolutions.com or by e-mail on [email protected]. All comments will be gratefully received, and where appropriate incorporated into subsequent editions . We would like to thank you for taking a copy of the guide and we hope that it proves to be a valuable resource in your profession . Happy and successful Freelancing .

Contents
SUCESSFUL FREELANCING
Business location and start up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Application basics - Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Savings & pension planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The sole trader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Limited companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Social enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

BUSINESS STRUCTURE

RECORD KEEPING

Bookkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Bank and cash records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Pricing and profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Credit Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Tax & compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 National Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Tax deductions & claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Law of contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 General & commercial insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

TAX & COMPLIANCE

LEGAL ISSUES INSURANCE PLANNING

Business plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 SWOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Cash budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Time management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 MARKETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Mahmood Reza Pro Active Resolutions

APPENDIX 1 APPENDIX 2 APPENDIX 3

Tax rates . . . . . . . . . . . . . . . . . . . . . . . . .21 Glossary of terms . . . . . . . . . . . . . . . . . .22 Useful contacts . . . . . . . . . . . . . . . . . . .23

Successful Freelancing Successful Freelancing

Some of the common mistakes that freelancers make when starting up include: Unrealistic expectations of what you can achieve Poor market research Weak financial planning Failing to seek professional advice Poor balance between time spent on artistic production and marketing/sales generation Over-investing in equipment unnecessarily tying up capital Overheads e.g. workspace/office too expensive Poor credit control not getting paid on time It is now possible for freelancers to apply for government support via the tax credits scheme, the main qualifying criteria is to be a working individual and over 25 if there are no children for further details see www.hmrc.gov.uk ; www.proactiveresolutions.com attract outside investors . Grants and government support may also be available Most freelancers use a combination of these, tailored to their specific needs and circumstances .

APPLICATION BASICS - FUNDING

A common source of funds for freelancers in the creative sector is through public funding such as local authorities, trusts and foundations, and the Arts Council . It is important that applicants adhere to any specific application guidelines that are stipulated by the funders . There are some general considerations, we have outlined these below:

The guide will hope to address some of these issues .

BUSINESS LOCATION AND START UP

Choose the right premises
Choosing the right premises is a key business decision . You want premises that help you operate effectively without excessive costs . At the same time, you want to avoid being tied to premises that might not suit you in the future . Different options suit different freelancers . Working from home is a good option if all you need is a small office space. You can also rent premises or buy a property outright . The rental or lease agreement will contain the rights and obligations of the landlord and tenant, once signed this will be a legally binding document with the tenant being (normally) personally bound . We recommend that suitable professional advice, such as from a solicitor, is taken in the interpretation of the enclosed clauses .

Your Selling Points

A few key reasons why the work you are doing is important and why donors will want to support you . Remember there is a massive difference in saying what you are doing and stressing why it is important and worth supporting .

Facts and figures about your work

Research, statistics and figures, which will help, demonstrate the importance of your cause, the extent of the need, the value of your work and the success of your methods you are using to carry out the project .

The credibility of your organisation

Endorsements and statements from other people will enhance the importance of your work and what you are trying to achieve . They should give the donor increased confidence in your ability to deliver the work you are promising to do.

Working from home

You may have to pay business rates to your local authority on the part of your house that you use for work and pay council tax on the rest of the property . The decision to charge will depend on the degree of commercial use . For example, operating a business from a desk in your bedroom will not incur business rates, as the main use of the room would still be domestic .

A plan & budget for your project

You need to be clear what you intend to do, how and when you intend to do it and what the benefits will be. These can be written up into a simple project plan. You can put them together as a financial plan for what you propose, properly and fully costed and covering all the items of expenditure you plan to incur . It should also include any income you plan to generate from the project .

Choose the right finance when starting up

Donor research

Every new business needs money when starting up . For the majority of freelancers, equipment will need to be bought, the workplace established and marketing costs met - all before the first sale is made . Then once youre trading, youll need cash to pay the bills and keep the business going . There is a range of financing options. Choosing the right ones for your needs is essential . You can use your own money, borrow from banks, family and friends or

Find out what the funder is interested in and the scale of support you might expect if your application succeeds (i .e . what to ask for) and identify any connections between you and the funder such as personal contacts or previous approaches for support .

Back-up literature

Have brochures, annual reports, quotes sheets and other good information available to attach to your written proposal . These will enhance your case and improve your chances of success .

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Business Structure
Say Thank You Keep in touch
If you succeed in getting a grant note any restrictions or obligations on your part and make sure you comply with these . Say thank you immediately . Maintain contact with those who are supporting you (obviously), but liaise with those who are not (whether you feel they are or should be interested in your work) . Report on your successes and continue to build your credibility with them .

Business Structure
Running a business is not just about working in a different way, the freelancer has to decide the form that the business will take . The choice of business structure will depend on the type of business, any inherent risks, industry stipulations and personal preferences . The structure you select will affect: The records and accounts you have to keep Your financial liability The tax and national insurance that you pay How your business can raise money Management structure and how decisions are made .

Go back

Ask those who have supported you for further support next year or the year after . Remember they have already demonstrated that they like you and what you are doing . Go back to those who have turned you down if you think that they should be interested . Persistence can really pay . Note any reasons given for rejection . It may be worth finding out if there is a chance for reapplying and trying to fix up a meeting to discuss your proposals further .

The main forms are:

THE SOLE TRADER

In legal terms, the sole trader operates as an individual. Business finances cannot be separated from personal finances insofar as the sole trader carries unlimited liability and is personally responsible for obligations incurred . A sole trader is the most basic business form of self-employment with no start-up costs . A sole trader is taxed as a self-employed person and can claim business expenses against profits. They are personally liable for any debts that the business incurs.

SAVINGS AND PENSION PLANNING

Savings
Freelancers do not normally have a financial safety net, no work normally equates with no income . It is important that freelancers save and put money aside, this will serve a number of purposes, (a) funds available to pay for tax and other liabilities; (b) financial safety net if there is no work; (c) enables the freelancer to take time off for holidays (recommended) .

Pension planning for the self-employed

A pension gives you a retirement income, paid for by investments built up during your working life . The State Pension is funded by your National Insurance contributions but only provides a basic income . You may need an additional pension to retire comfortably . As a self-employed person, you cannot join an employers pension scheme and do not qualify for the additional State Pension . However, you can take out another type of private pension such as a personal pension or a stakeholder pension . The amount you get at retirement depends upon how much money has been paid in, how well it has been invested and the age at which you retire. Independent financial advice is critical in this area, and any area of financial planning.

Advantages

The advantages of being a sole trader lie in the self-sufficiency and independence of the person being able to do their own thing, and there is little or no regulation .

Disadvantages

There are several disadvantages of operating as a sole trader . The person cannot spread risk very easily without taking more owners on board . One source estimates that about 75% of small freelancers cease trading in the first four years.

PARTNERSHIP
This is where two or more people run the business and share the risks, costs, profits and decision-making on an agreed basis . Each partner is self-employed and personally responsible for all debts run up by the partnership as a whole . A written partnership agreement is highly recommended . A partnership is in many ways an extension of the sole trader in that the individual partners business affairs are indistinguishable from their personal finances. They reap all the profits, divided according to agreed criteria (ideally set down in the partnership agreement) and carry full personal liability . If the business fails, there is a direct personal impact on the finances of the individual partner.

Exit strategy

When youre setting up your business its essential to think about how youll ultimately end your involvement with it . A well thought-out exit strategy can help you to maximise the value you get from your business, successfully market your business to potential buyers or investors and ensure you end your involvement with as little disruption to the business as possible . Regardless of whether your exit occurs to a planned schedule or you are forced to make a move for unexpected reasons, the decisions you make when setting up can affect how easy it is for you to eventually exit your business .

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Business Structure
Advantages
The partnership enables individuals to spread risks in several ways . Decisions can be taken with the benefit of input from at least two persons, enabling a broader perspective to be taken of the issues concerned. The business can fall back on the financial resources of more people, and there is also the possibility of tapping more sources of capital . Bigger, established partnerships may be able to attract venture capital, not normally available to a sole trader . Most partnerships have a greater level of skills and abilities not available to sole traders . There is also less likelihood of business failure due to illness or other inability to work, as other partners may be prepared to take on more work temporarily to avert a crisis .

Advantages

The shareholders or founders have limited liability, i .e . they only stand to lose at most the amount of money they have invested in the company . Any obligations incurred accrue to the company itself, separable from the individuals . The owners of the business reap rewards in the form of dividends. These are distributed profits, so the more the company makes, the more the shareholders gain . Shareholders can also gain by the value of their shares appreciating . If a company is successful the value of the shares will increase . The converse is also, of course, true . In a doomsday scenario, the shares can become worthless .

Disadvantages

Disadvantages

Many of the disadvantages of sole traders apply to partnerships . There is unlimited liability, so the financial risk falls upon the individual partners. Unless the partnership is large and well-established, it is unlikely to amass any significant economies of scale, so the partnership may be unable to compete with bigger players in its market . Some disadvantages stem from the problems of shared responsibilities . Many partnerships break down because those involved cannot agree on direction, objectives, and split of profits or workload.

Potential problems in extracting funds form the company for personal use, and a greater administrative and legal burden . If a company hits a bad patch, its poor performance can result in a self-fulfilling prophecy and the value of the company will fall, this may be academic for most freelancers since the value of the company is negligible if it is dependant on the owner/freelancer .

SOCIAL ENTERPRISES
A social enterprise or not-for-profit organisation is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community . Many arts organsations are social enterprises . If you are looking for funding, rather than loans, it might be best to set up as a social enterprise to prove where your profit/surplus is going. Many Trusts and funders will make this a requirement and some will expect you to be a registered charity . Within this definition, social enterprises can take on a variety of forms, including: Unincorporated associations Trusts Limited liability companies Some industrial and provident societies such as community benefit societies Charities Community Interest Companies Charitable incorporated organisations

LIMITED COMPANIES
A limited company is a separate legal entity existing in its own right, distinct from the shareholders or people who own or run it . It is more costly to set up and run, but the directors personal assets are not normally at risk should the business fail . Limited companies have a greater regulatory and administrative burden placed upon them. They must register and file accounts with Companies House and are liable for corporation tax . Companies have a formal constitution set out in the Memorandum and Articles of Association . The Memorandum sets out the framework of the business in a set of clauses . The Articles are the internal constitution, laying down how directors are elected and removed, rights and duties of shareholders and other internal constitutional matters . The two main forms of limited company are: Limited by shares Limited by guarantee

Advantages

Easier to access public funds and shows a greater level of transparency and probity . Depending on the format adopted it will minimise the financial risk and exposure.

Disadvantages

The company limited by shares has shareholders and tends to be used in profit making ventures with the owners being able to take out the profits of the company (by way of dividends). A company limited by guarantee tends to be used by not for profit organisations; any profits (or assets) are not available for the members.

Potential problems in extracting funds from the company for personal use, with a greater administrative, management and legal burden . The costs of formation may be higher than other business structures . For more information see: www.setas.co.uk; www.charity-commission.gov.uk; www.proactiveresolutions.com

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Record Keeping
STATUS
The majority of freelancers consider themselves self employed, however this may not be a view shared by the client . The client is under a legal obligation to assess the status of the freelancer, i .e . whether the freelancer is employed or self-employed, this is called a status test . The status test will have a fundamental bearing on the way payments are made to the freelancer . Payments to the self-employed can be made gross, whereas payments to employees have to be made under the rules of Pay As You Earn (PAYE) . A freelancers claim that they are self-employed is not sufficient to discharge the clients responsibility; a status check must be carried out . The essential characteristic of employment is a contract of service, and that of a self-employed worker is a contract for services . A contract of employment must contain an obligation on the part of the employee to provide their services personally, without such an obligation the contract is not one of service . The terms of the contract are not conclusive in determining status, and over the years a number of factors have evolved as indicative of contract for services, and therefore a pointer to self-employment . Some of these factors include a right of substitution of personnel; the worker using their own money and taking financial risks; flexibility regarding working hours and place of work; the workers right to decline to perform certain work; a statement that the worker will be responsible for their own tax affairs; the worker being responsible for rectifying work in their own time and at their own expense . Each case or situation has to be judged on its own individual circumstances and merits, and there is no formulaic approach available to determine whether a worker is employed or self-employed . Freelancers need to be aware that they must also apply these tests to any individual that they work with, or buy services from .

Record Keeping
It is useful if the freelancer has some basic financial knowledge and awareness. Before these issues are explored it would be useful to put accounting into context and explain what it is . Understanding accounting and finance is important for an effective freelancer; the benefits of a good system can be compared to the control panel on an aircraft. The pilot relies upon his instruments to measure and control the performance of the aircraft, shows him how the aircraft is doing, what outside conditions are like, the path he should take and so on. The instrument panel is not flying the aircraft; it is helping the pilot to do his job properly . Accounting affects three main areas: Record keeping Financial accounts Management information .

Like the aircrafts instrument panel these elements help us measure and control our performance, tell us how we are doing, and help guide us . Knowing how to operate and use this instrument panel will help in the running of any venture .

BOOKKEEPING
We should keep records of income, purchases, expenses, assets and liabilities . This can be done on scraps of paper, but a good formal system of record keeping is recommended . Good recording systems enable us to satisfy our obligations to the appropriate tax and government agencies, control and monitor the business and provide an effective management information system . The objective of financial accounting is to provide financial information about a business. This information is given in a set of financial statements, which are: The profit and loss account a summary of the businesss transactions for a given period of time The balance sheet a statement of the businesss financial position (debt, assets and value) at one point in time

Financial records will need to be kept for Proper financial control Information Transparency Third party obligations Contractual obligations

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Record Keeping
Any records that are kept need to show What cash has been spent and received Monies paid in and out of the bank Who we owe money to Who owes us money immediately against the cash book(s) and a bank reconciliation statement should be prepared along the following lines and kept at the back of the cash analysis book . If the two figures do not agree, check the entries in the cashbook: Have all payments and receipts been entered correctly? Has a cheque issued some time ago not cleared? Has the cashbook been added up correctly?

The level and extent of the record keeping system will be influenced by the size and complexity of the freelancers business . The information below presents an overview of record keeping, any system needs to be adapted in light of individual circumstances the key is that some form of regular and organised record keeping should be implemented .

Customer records

BANK AND CASH RECORDS

Cash transactions should be kept to the minimum; Petty cash transactions must be recorded on petty cash vouchers and in the petty cash analysis book, and analysed under appropriate headings (for example travel expenses, postage) . Whenever possible a receipt should be obtained and stapled to the petty cash voucher, which should be numbered . Always record full details of the transaction - the amount, what it is for and the voucher number . The amounts entered in the columns in the cashbook should be included in the business accounts .

Every time you do some work for a client you should produce an invoice (or provide a receipt if for cash) . The invoice should contain a minimum level of information, namely (a) date this should be the date when the work was completed; (b) customers name and address; (c) invoice number/reference; (d) a brief description of what work was carried out; (e) value of the invoice exc . and inc . VAT . The invoices should be filed in numerical order, ideally divide the file into a paid and unpaid section as the invoices are paid then transfer them to the paid section . Credit control is an important consideration and is outlined below .

Supplier records

Imprest System

Most freelancers with relatively straightforward affairs can adopt a method similar to cash analysis; purchases are recorded (when the item is purchased or service provided) under the appropriate heading, e .g . stationery postage, travel etc . When the bill is paid this should also be recorded . The invoices should be filed in numerical order, ideally divide the file into a paid and unpaid section as the invoices are paid then transfer them to the paid section . Suppliers may send remittance advices; these should be attached to the invoices .

This is a very popular system that is used to record cash payments and would be used for petty cash payments. A level for a cash float is decided upon and this is put into a cash box (ideally secure and safe), when the float becomes low it is topped up to original cash float

Cash analysis book

The cash analysis book, often known as the cashbook, is an organisations most important financial record. Entries should be made as soon as possible after every transaction (i .e . money paid into the bank, cheques drawn or standing orders or direct debits paid) . Cash analysis books use a number of columns to analyse each transaction . Each column is given an appropriate heading, for example, Stationery, Rent, Travel, etc . If all income is recorded in one column, this should be headed income . Although not compulsory, operating a business account will keep your personal finances separate from the business and present a more credible status . Remember, the Inland Revenue has the right to look at your business records and therefore you will need to keep them for at least six years.

PRICING AND PROFIT

The price you charge for your product or service is one of the most important business decisions you make . Setting a price that is too high or too low will - at best - limit your business growth . At worst, it could cause serious problems for your sales and cashflow. If youre starting a business, carefully consider your pricing strategy before you start. This will be influenced by the type of service offered, competition, expertise, market forces and individual cost base . Established freelancers can improve their profitability through regular pricing reviews. When setting your prices you must make sure that the price and sales levels you set will allow your business to be profitable. You must also take note of where your product or service stands when compared with your competition . In broad terms, profit is income generated, less (running) costs incurred. It does not normally include money you draw out yourself, and will not include the cost of purchasing items such as equipment and computers; depreciation is claimed instead .

Bank statements and bank reconciliation statements

A bank statement is the banks record of our finances. This record may not agree exactly with that in the cash book(s) because it can take a few days for deposits and payments to appear in a bank account . Bank statements should be checked

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Tax & Compliance

CREDIT CONTROL
Many freelancers fail in the first few years due to cash flow problems. It is essential to take a professional approach to getting paid . Freelancers face a delay between generating income and subsequently receiving the cash, example sources being from fees, grants, sales, grants and donations . There are effectively two stages to the management of credit control, namely the initial granting of credit facilities and its subsequent management . Granting credit always carries an element of risk (of not receiving the cash), credit control is about the management of that risk . Clients should be assessed for their credit worthiness (credit scoring), the size and status of the client is not a determinant of their credit worthiness, large organisations are as likely to default as small ones . Credit scoring can be carried out using trade and bank references, Companies House information, county court register, client visits, rumours, first impressions and credit reference agencies . The internet is a useful tool in credit scoring and one has access to a large amount of relevant information and credit ratings . The key idea behind credit scoring is to profile the client in terms of risk. Ideally a written agreement should be drawn up stating the terms and conditions of payment, e .g . number of days to pay, interest being levied on late payments, legal title to goods not passing to the client until full payment is received etc . This will be important if legal action has to be instigated . Once the invoice is issued then call the client within a few days (as part of a post sales review) to check that the client is happy, that there are no problems and that the invoice was received (and by the correct person/department) . If payment is not received by the due date then reminder letters/faxes and phone calls need to be made, the letters or faxes will go up in severity from the friendly to potential court action at this stage client relationships would have deteriorated court actions can be instigated online and are procedurally efficient. Technology can play an important part in credit control, for example the issuing of invoices via e-mail, setting up time alerts (Microsoft Outlook), and the production of credit reports showing outstanding invoices and days outstanding . Electronic delivery methods will quicken the collection processes, provide confirmation that the invoice was sent, and save money on consumables and postage . Remember to: Confirm all orders or commissions in writing Agree payment schedules in advance and include the detail in a contract Send invoices promptly and statements to chase late payers Follow up any overdue invoices immediately by telephone and letter/email

Tax & Compliance

A freelancer operates within a framework of legislation and regulation, none more so than when dealing with the Inland Revenue (Her Majestys Revenue & Customs, HMRC) . The consequences of non-compliance usually result in penalties and interest being levied by HMRC .

OBLIGATIONS
As a minimum a freelancer will need to formally notify and register with HMRC within 3 months of starting as a freelancer . Most freelancers will need to complete and submit a tax return to HMRC, electronically or in paper form, the return covers all income and capital gains earned in a tax year (6th April to 5th April) . There are a number of key dates in the tax filing calendar. If a paper return is being filed then the completed return must be sent in by 30 September following the end of the tax year if you wish the tax calculation to be done for you and have any tax owed (under 2,000) collected via your PAYE code; if filing via the Internet then the requisite date is the following 30 December, 31 January is the normal final deadline to submit the returns and pay any tax due if penalties and tax are to be avoided . Payments are normally made twice a year, 31st January & 31st July, these are made up of payments on account (advance payments for tax) and balancing payments (clearing arrears) . A freelancer will pay income tax on profits generated by the business (sole trader or partnership), or corporation tax and PAYE if operating through a limited company The relevant tax rates are quoted in Appendix 1 (22)

NATIONAL INSURANCE
Individual freelancers will pay self-employed flat rate (Class 2) National Insurance contributions (NICs) throughout the year . These are collected by HMRC and give an individual entitlement to benefits including state pension, maternity and unemployment benefits. Additional (Class 4) NICs will be paid if profits exceed a certain limit.

TAX DEDUCTIONS AND CLAIMS

Money will be spent by the freelancer on a wide range of things, some will reduce their tax bill, and others will not on average every 100 of allowed costs will save the artist at least 30 in tax. In general the expenditure reduces tax if it is wholly and exclusively for business purposes . The Revenue, by concession allows certain expenditure to be split on an equitable basis between business and personal, for example vehicle running costs and telephone costs are usually in respect of business and personal use .

Also remember that getting paid is only part of the story regularly monitor your income against projected expenditure and adjust your charging to reflect realistic overheads and time spent .

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Legal Issues
Where a freelancer makes business journeys outside their normal pattern, or the business is by its nature itinerant, for example a travelling freelancer, then modest expenses may be tax deductible . Where a business trip necessitates one or more nights away from home, the hotel accommodation and reasonable costs of overnight subsistence are deductible . The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether or not paid on the same bill . A freelancer can choose to claim actual costs of (business) travel using their own transport or claim a mileage allowance instead; this mileage allowance is given for cars, motor bikes and pedal cycles this can be more advantageous than claiming actual costs . Where a freelancer pays for training courses with the purpose of up-dating their skills and professional expertise, it is normally allowed as a tax deduction . However, if a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be allowed . Expenditure on business entertainment or that which is incidental to business entertainment is not allowable as a tax deduction . Business entertainment means the provision of free or subsidised hospitality or entertainment . The person being entertained may be a customer, a potential customer or any other person . If a freelancer can demonstrate that hospitality is given as part of a contractual arrangement in which services of an equivalent value are provided, then the hospitality costs are not treated as business entertainment, and the expenditure allowed . Other deductions can be made in respect of the use of a room as an office and the purchase of equipment .

Legal Issues
The law can be thought of as a set of rules and regulations; they say how individuals and organisations should behave and what happens if the rules are not followed . We have a network of courts in this country that deal with breaches of the law and who decide what the consequences should be if the law is broken .

THE LAW OF CONTRACT

In a wide variety of agreements with individuals and organisations, if someone does not honour their side of the agreement, it does not necessarily mean that there will be any legal consequence . With any form of business or commercial relationship it is always important to have good written records, however it is not essential for a contract to be in writing for it to be legally effective . The following are the fundamental requirements for a contract to be valid: An intention to create legal relations - the parties are intending to accept the authority of the law, and to be bound by their contracts Capacity - the parties must have the legal capacity, or ability, to enter into the contract and accept the authority of the law Offer and acceptance Consideration - both parties must provide money or moneys worth Consent - the parties must genuinely consent to the terms of the contract

INTELLECTUAL PROPERTY
Freelancers in the creative sector may be involved with intellectual property, from a creation and/or use perspective . Intellectual property, often known as IP, allows people to own their creativity and innovation in the same way that they can own physical property . The owner of IP can control and be financially rewarded for its use. In some cases IP gives rise to protection for ideas but in other areas there will have to be more elaboration of an idea before protection can arise . It will often not be possible to protect IP and gain IP rights (or IPRs) unless they have been applied for and granted, but some IP protection such as copyright arises automatically, without any registration, as soon as there is a record in some form of what has been created The four main types of IP are: Designs for product appearance Copyright for material - literary and artistic material, music, films, sound recordings and broadcasts, including software and multimedia Patents for inventions - new and improved products and processes Trade marks for brand identity

VAT - VALUE ADDED TAX

If your business has an annual income (excluding grants) of more than the current threshold (61,000 post 01-Apr-06) you must register for VAT with Customs & Excise, once registered you must charge your customers VAT and submit regular VAT returns . A VAT registered business must charge their customers VAT (output VAT) on the value of their goods and services, they will pay VAT (input VAT) on the goods and services they buy in, the difference between output and input VAT is paid to HMRC, or claimed back . Businesses may choose to voluntarily register for VAT, this may be because they wish to project a certain image about their business (by way of size) or be able to claim back VAT . There are effectively three categories of supplies for VAT purposes, standard-rated and zero-rated (taxable) and exempt supplies (non taxable) . Zero-rated supplies include the supply of food, books (but not stationery), protected buildings; exempt supplies include works of art, fundraising events, education, health and welfare . VAT registration is governed by the level of taxable supplies .

However, IP is much broader than this extending to trade secrets, plant varieties, geographical indications, performers rights and so on . Often, more than one type of IP may apply to the same creation .

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Insurance & Planning Insurance

There are three main types of insurance that you will probably need to look into when in business . Liability insurance General & commercial insurance People, life & health

Planning
It is important to plan, to be more proactive than reactive . An eye needs to be kept on the future; here we outline some key areas .

BUSINESS PLANS
A business plan is simply a planning tool to help you document your vision and how you will achieve it . Be aware that a business plan is a living document, which means that you will need to keep it up-to-date as your business expands . A business plan covers: The business objectives your vision An outline of the products and services you intend to supply Demand customers, competitors and your unique selling points Marketing plans pricing, promotion and related costs Finances estimated sales, overheads, cash flow Organisational issues premises, staff, equipment, IT support Success criteria both business and personal A synopsis of the key points of your entire plan (executive summary) for those who have limited time to read the full document .

LIABILITY INSURANCE
As a business owner or employer, you have a legal responsibility towards your customers, the public and any employees . You could be held legally liable and risk being sued if a member of the public or an employee is injured as a result of your negligence or breach of duty . Liability insurance is designed to pay any compensation and legal costs that occur if an employer is found to be at fault . If you employ anyone it is most likely that you will need to have employers liability compulsory insurance (ELCI) .

GENERAL & COMMERCIAL INSURANCE

Insurance can protect your business against damage to, or the loss of, physical assets . The cost of insurance depends on both the insurers assessment of the likelihood of damage and the size of any payment they may have to pay in the event of a claim .

PEOPLE, LIFE AND HEALTH

If you suffer an injury, illness or death, there could be serious financial consequences for you or your business . Insurance can provide protection for the business itself, as well as for the individual concerened . If you are thinking about buying some insurance protection, it is always a good idea to get expert help from an independent financial adviser.

If freelancers are to plan (which is recommended) then it is necessary to carry out an internal and external evaluation . One of the more popular methods is by carrying out a SWOT analysis .

SWOT ANALYSIS
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats . The SWOT analysis should draw out any opportunities and threats that face the organisation, then together with the strengths and weaknesses, it is possible to see how opportunities can be met and threats can be avoided .

Strategies

The completed SWOT analysis should help give you an overview and a starting point as to where you want to go . Objectives are what we want to achieve and should be incorporated into a strategy, which outlines how you plan to do this . Objectives should be SMART:

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Planning

Specific: clear indication of what the goal is Measurable: able to evaluate progress Agreed: supported by all staff Realistic: achievable Time-constrained: deadlines set

Use Your Time To Your Advantage - Be In Control

Plan your day bearing in mind when your energy levels are at their highest . Dont break your chain of concentration with interruptions that you can prevent If you are becoming increasingly aware that your time seems to be slipping away and that there is a danger that tasks could start to edge nearer the CRITICAL ZONE check this out . Keep a time log to see where your time goes . Minimise too many interrupting phone calls

CASH BUDGETING
Cash is the effective lifeblood of any business and organisation, poor control and insufficient access to it will result in business failure. Cash is critical in the short, medium and long term; weak control will lead to a lack of sustainability If cash is not pulled in on time to (at least) meet cash liabilities then sustainability is normally maintained by additional borrowings and/or payment delays of liabilities whether it can continue to be maintained is a separate issue . It is critical that freelancers prepare a cash flow forecast, this is vital for risk management and identifying potential problems . The construction of a cash budget requires us to look at the future and requires us to address three key questions WHEN do we receive and pay cash? WHAT do we receive and pay cash from/to? HOW MUCH do we receive and pay cash from/to?

Handling Paperwork
Get into the habit of managing your desktop as if its one of the most important elements to winning back your time . If you have one project, one piece of paper or whatever you are working on in front of you and the rest of your desk is clear, youre bound to have more energy, focus and direction for that project .

Handling Interruptions & Distractions

Keeping a handle on distractions will be the main issue to deal with, this might be in the form of casual callers and people who ask if you have a minute, which rarely means a minute . Ways in which to deal with this is to keep an appointment diary visible for enquirers to use / see . For other interruptions and distractions keep a note book with you at all times, not only will this banish all the scraps of paper but when at your desk you can instruct people to note down their query in a central place .

These are the essential questions that we need to answer if we want to build a relevant and effective cash flow forecast. A cash flow template can be found at www.proactiveresolutions.com

TIME MANAGEMENT
Time is a resource that is finite, (unfortunately) it cannot be increased and we have to manage within a 24 hour day. However, it is important to manage time more efficiently and effectively, a number of systems exist to facilitate this management, below are some general points to bear in mind .

Daily Planning

Once you are familiar with using a system that suits you to organise and prioritise incoming tasks you can begin to build on that system and incorporate other planning techniques .

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Marketing Marketing
Selling your work can be much harder than creating it in the first place and marketing often does not come naturally . Here are some pointers: Make trying your service/product easy offer tasters or money back guarantees . Keep a database of past and potential customers and keep in touch every so often . This could be via a newsletter, Christmas card or an occasional email about good news . Make sure you assess everything you do to promote yourself so you can decide whether it is worth doing again . Keep records on how many sales or contacts you get from each fair, networking event, advert, mailing or from your website . Use free promotional tools wherever possible eg press releases on an interesting story or new product . Make sure you network with others to meet potential customers; find out about your competition and meet potential collaborators . This might include going to launches, private views, seminars, conferences, performances as well as networking events .

Decide what makes your work different:

Think about what makes your work unique and why someone might choose it over something else . In other words, what is your unique selling point? Try and express that clearly and concisely (for example as a strap line) and use it in your written material (see promotion below) . If there are a lot of people doing what you do think about how you can specialise e .g . a web design company specialising in websites for schools, a dance school for children specialising in street dance .

Presenting your work:

Who is likely to buy your work? This might be other businesses or the general public . Think about where those sort of customers will go to buy and what sort of papers, magazines, websites theyll read . How can you get free PR in those media? Make sure you have a good collection/portfolio of work to present and short testimonies from past customers Make sure your work is well presented: well displayed, framed, packaged and labelled Have some information about you, how you work and what makes you tick . If people are buying creative work they want to know about the person who made it .

Sales channels
Think about the various ways in which you can sell your work or services . e .g . shops, galleries, web site, shows . Will you be working directly with customers or through other businesses? If through others you will need to build some commission into your prices for them . Recognise who your customer is and who the consumer is . Your customer may not be the consumer and their needs may be different . i .e . a dance school customer may be the parents, and the children the consumer .

Pricing your work:

When pricing your work take into account: What is charged in other places for the same sort of work do some research How much it cost you ensure you get a decent rate per hour to include covering all your costs plus a profit margin! How you want to be perceived: affordable, market average, premium/luxury

Promotion:
Decide what you want to use as your brand name and/or logo so people can come to recognise it . This could just be as simple as your name in a particular colour or typeface . Use it on all stationery, business cards, and websites . When producing promotional material make sure you include a description of what your product or service can do for a customer/client .

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Appendices Appendix 1: Tax Rates

Freelancers are subject to tax on their taxable profits (see pages 12 to 13) less any personal allowances, they then pay tax on the balance at the appropriate rates . We have decided to provide the current and historic tax rates and allowances in a separate document on our web site; this is because these rates and allowances are subject to change at least on an annual basis . The tax rates and allowances can be found at: www.proactiveresolutions.com/resources-downloads/tools-and-templates/

Appendix 2: Glossary of Terms

Asset
Items of value controlled and used by the business .

Liability
An obligation to pay money at a future point in time

Capital expenditure
Expenditure incurred in the acquisition of fixed assets for business use and not intended to be resold

Long-term liability
Funds provided for the business on a medium to long-term basis by an individual or organisation, e .g . a bank .

Corporation tax
Tax payable on company profits

Net assets
Total assets less total liabilities

Creditors
This is part of current liabilities and is the sum of money owed by a business to its suppliers .

Net current assets

Also called working capital; it is the difference between the current assets & current liabilities . These are the funds of the business for day-to-day transactions, e .g . paying bills .

Current assets
These are short-term assets such as stock, debtors and cash .

Net profit
Income for a period less all expenses for the same period

Current liability
Short term debt payable within one year, e .g . suppliers

PAYE
Tax paid by employees & employer, the system is operated by an employer

Debtors
This is part of current assets and is the sum of money owed to a business by its customers .

Revenue
Expenditure incurred in obtaining assets for turning into cash; Expenditure manufacturing, selling & distribution goods; day to day administration of the business; and maintaining fixed assets

Depreciation
A non-cash expense which is the cost of using an asset .

Income tax
Tax payable on income such as profits (sole trader or partnership), wages and interest .

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Appendices Appendix 3: Useful Contacts

CREATIVE LINKS
FOR DANCE
Dance4 www.dance4.co.uk [email protected] 0115 941 0773 Dance Uk www .danceuk .org info@danceuk .org 020 7228 4990 This section lists contact details of organisations that may be able to provide more in depth advice and guidance on starting a business . Artquest www .artquest .org .uk stephen@artquest .org .uk 020 7514 6493 British Design Innovation www .britishdesign .co .uk info@britishdesign .co .uk 01273 621 378 Design Trust www .thedesigntrust .co .uk info@thedesigntrust .co .uk 020 7435 4348 The Design Factory www .designfactory .org .uk info@designfactory .co .uk 01529 414 532 DTI Department of Trade and Industry www .dti .gov .uk dti .enquiries@dti .gsi .gov .uk 020 7215 5000 The Enterprise Centre for the Creative Arts www .ecca-london .org info@ecca-london .org 020 7514 7985 HM Customs & Excise VAT Advice Centre www .hmce .gov .uk 0845 010 9000 Inland Revenue www .inlandrevenue .gov .uk 0845 915 4515 Learning & Skills Council www .lsc .gov .uk info@lsc .gov .uk 0870 900 6800 National Federation of Enterprise Agencies www .nfea .com enquiries@nfea .com 01234 831 623

FOR FILM
EM Media www .em-media .org .uk info@em-media .org .uk 0115 9349090

BUSINESSES SUP-

FOR FASHION
Emtex www .emtex .org .uk enquiries@emtex .org .uk 01623 440 612

PORT ORGANISATIONS

FOR THEATRE
ITC www .itc-arts .org admin@itc-aerts .org 020 7403 1727

www.proactiveresolutions.com [email protected] 0116 224 7122 Bplans .com www .bplans .co .uk sales@paloalto .co .uk 0845 351 9924 British Chambers of Commerce www .chamberonline .co .uk info@britishchambers .org .uk 020 7654 5800 Business Link/Small business services www .businesslink .org 0845 600 9006 Companies House www .companieshouse .gov .uk 0870 333 3636

FOR CRAFT
Crafts Council www .craftscouncil .org .uk reference@craftcouncil .org .uk 020 7278 7700 CreativePeople www .creativepeople .org .uk info@creativepeople .org .uk 01883 371112

FOR VISUAL ARTS

a-n The Artists Information Company www .a-n .co .uk info@a-n .co .uk 0191 241 8000 Arts Training Central www .artstrainingcentral .co .uk info@artstrainingcentral .co .uk 0116 2425202 apd Artists Professional Development Network www .apd-network .info apd@a-n .co .uk 0114 276169

www .creativeleicestershire .org .uk chudson@leics .gov .uk 0116 267 0017

FOR DESIGN
Design council www .designcouncil .org .uk 020 7420 5200

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Business Services Final accounts Management accounts Business start ups Company Formation Tax Business tax planning Corporate tax planning Personal tax planning Tax investigations Self assessment Management Consultancy Business health checks Systems evaluation

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Pro Active Resolutions Whilst every care has been taken in the preparation of this document, Pro Active Resolutions cannot be held beyond statutory liability for errors or omissions. The information is for general guidance only. You should neither act, not refrain from action, on the basis of any such information. You should take appropriate professional advice on your particular circumstances because the application of laws and regulations will vary depending on particular circumstances and because laws and regulations undergo frequent changes.

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