My Money: Issue 3 by My Money Magazine

AUTUMN 2018 www.ipse.co.uk

F I N A N C E S

F O R

F R E E L A N C E R S

Welcome to our autumn edition

id you know that identical twins are said to have similar styles of saving and investing? This is down to genetics, according to a study in Sweden. It shows our money management styles aren’t just learned habits, they’re also part of our DNA. Learn more on page 25.

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Tim Bradburn Tom Hayward

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No matter what your nature (or nurture), there are always things you can do to make your finances run more smoothly as a self-employed person. For example, there are plenty of items you can claim as expenses on your tax return, some of which might surprise you. Have a look at page nine for some tips on things you could expense - such as your home office, if you work from home. Speaking of homes, there’s a lot of talk about “monster” mortgages lately. Sound scary? Have no fear – the experts answer some frequently asked questions on page 29. If you’d like to know what not to do with your money, take a look at five costly mistakes to avoid on page 21. As well as that, we also have advice on how to raise your rates as your career progresses, and how to protect your business from cyber attacks. Plus, our money expert Iona Bain discusses the tricky subject of whether it’s ever a good idea to work for free. -THE MY MONEY TEAM

IPSE does not necessarily agree with, or guarantee the accuracy of, statements made by contributors or accept any responsibility for any statements which are expressed in the publication. All rights reserved. This publication (and any part thereof) may not be reproduced, transmitted or stored in print or electronic form, or in any other format, without the prior written permission of IPSE. IPSE, its directors and employees have no contractual liability to any reader in respect of goods or services provided by a third-party supplier.

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My Money

Pay as you go or fixed retainer? Learn how to set your rates effortlessly

Contents 6

The big 10 Q&A with Town Planner Chris Pipe

Self-employed expenses What can you claim?

MORE ON P.9

Autumn 2018

S AV E THE D AT E

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To find out more visit www.nationalfreelancersday.com Follow us at #nationalfreelancersday @TeamIPSE

INTERVIEW

The big

We asked freelance Town Planner ChrisÂ Pipe our ten top money questions

My Money

How would you define financial success? To make enough to be able to do what you love both in your professional and personal life. For some making enough to pay the bills with a small surplus for indulgences is enough, for others it’s on a more ambitious scale – to each their own. What’s the hardest thing you’ve learned about money along the way? Not to expect everyone to pay on time. If you rely on a payment and it doesn’t materialise in the timeframe set you could be in trouble, so always think ahead. When you’re in business you can understand why so many go out of business within their first few years. The financial burden can be

If you rely on a payment and it doesn’t materialise in the timeframe set you could be in trouble, so always think ahead.

frightening. Always have in mind what your financial runway is. If money were no object, what would you treat yourself to right now? I’d buy a house with a large annex which I could use as an office, I’m struggling to find dogfriendly office space to help with in my business growth plans. One of the perks of being self employed is that you set the terms and therefore my dogs (Fozzie and Bear) are part of my business and must be accommodated in any office. If you could donate to any cause, what would you choose? In my profession the housing crisis is a prevalent topic. While I’ve already offered my services to a couple of Help the Homeless Charities on a pro bono basis, I’d give more to Shelter or the local charities supporting the homeless in the North East. How easy was managing your money, when you first started your business? I have never been good at money management, which I’m not proud to admit. I struggled (and still do) with the different reports and expenses - what you can and can’t claim. Business finance is my nemesis. My first accountant didn’t support me in a way that allowed me to develop my knowledge as she feared I’d do my own accounts. She worked

My business was developed on a shoestring budget like so many other businesses.

on the principle that knowledge is power, and it wasn’t right. I’ve now been able to find a new accountant (Kieran, the MD of Paykeeper) who is happy to explain things to me and doesn’t scoff at ‘silly’ questions, which is helping me develop. Do you have a favourite finance book, website, app, etc? I should read a finance book, but I haven’t. I watch Paykeeper vlogs, and read their blogs which are useful. I also use the Free Agent app for my accounts. You can get this for free if you are a new business and open an account with NatWest. Who in your life has taught you the most about money? I don’t think I’ve had a lot of people who have taught me about money, which is probably why I struggle.

My husband’s best friend Andy has been in business for many years and is currently in the process of selling his business. I’ve tapped into his knowledge, which has helped. Do you have any money regrets? I wished I’d saved more during my career because starting a business can be financially draining. A financial cushion would have been useful. However it may also have meant that my business might not be at the stage it is, as initially I thought I was developing a lifestyle business rather than a one with ambitious growth plans. What was the first thing you bought when you got paid for the first time? I wish I could say a pair of Louboutins or something exotic, but I put the money towards my website. My business was developed on a shoestring budget like so many other businesses. Would you say you’re driven more by money, or love of your work? Definitely my passion for my profession and the flexibility and freedom you have being selfemployed. I have had lucrative opportunities to work for another company while developing my business, but in the longer term its not just about money, its about doing what you love.

hris has a wealth of experience in the town planning industry and, as former head of planning for a council and a director for a large PLC property company, she knows her way through the planning system and has a unique perspective on it.

She launched Planning House in 2016 - an independent planning consultancy based in North East England, which specialises in residential development. The ethos behind Planning House is to provide no-nonsense, realistic support and advice for clients, but with a personal service at the core of the business.

Autumn 2018

My Money

A CCO U N T I N G Content provided by OPTIONIS

Self-employed expenses: what can you claim? When you’re self-employed, your expenditure and your finances are entirely your responsibility. You need to be savvy when considering your business costs, and it seems that the bigger your business grows, the more you seem to spend. Luckily, one of the perks of working for yourself is the ability to claim back some of the costs of legitimate business expenses. Of course, there’s the obvious - mileage and insurances for example, but there may well be some lesser known business expenses you’ve missed out on. To show you just what is possible to claim, here are 11 business costs you can expense — so get saving those receipts and invoices.

Social media

Protective gear

Setting up on social media is free, but using it as a channel to advertise your services or to promote yourself can be costly. Though this can be one of your greatest assets, it can quickly drain your bank balance.

Sadly, this one’s only applicable if you are required to work somewhere which could potentially be hazardous (if you’re a builder, for example). Anything which is purchased exclusively for your health and wellbeing whilst at work is good to add on to your tax return. This includes the likes of hardhats, steel toe boots, but could even stretch to sunscreen and sunglasses if you’re working outside.

If you’re using social platforms solely for the purpose of your business, keep your invoices and claim the cost as an allowable business expense.

TOP TIP:

Don’t automatically write off a business cost just because you’re unsure - you never know!

Gifts for employees and clients TOP TIP:

Anything which is bought ‘wholly and exclusively’ for your work can be claimed by HMRC’s standards.

Training and courses When you’re self-employed, your skills are the best way to market yourself. If you think it would be beneficial to the running of your business to learn something new or brush up on something you’ve not put into practice for a while, you can claim the cost of your training or education as a business expense. Autumn 2018

If you work for yourself, there’s actually an allowance known as a ‘trivial benefit’, which allows you to give small gifts (under £50) to employees and directors. There’s no limit on the number of ‘benefits’ you provide, as long as they don’t exceed £50 at a time or £300 in total over the year. The occasional treat will keep both your employees (if you have any) and your bank balance happy. Win-win! 9

Eye tests

Use of your home office HMRC automatically allows a no questions asked deduction for the use of your home office which equates to £4 per week. This is to help towards everyday expenses like utility bills, council tax and rent (if applicable). This doesn’t, however, cover the cost of internet or phone (you will need to calculate these expenses proportionately).

TOP TIP:

If your home office is your primary place of work, use the flat rate expense scheme as a quick and easy way to claim back cash spent.

Use a computer everyday? You can claim the cost of your annual check-up as part of your tax return. HMRC include this as an allowable expense on the basis of health and wellbeing as your computer is an essential tool for your work. You can’t, however, claim back the cost of glasses and contact lenses (unless you can prove these are specifically for monitor/screen work and not used outside of work)

Cycling miles Business miles aren’t only claimable if you drive or use public transport - you can claim the cost of mileage to temporary workplaces and business meetings even if you cycle. Just record your distance, calculate the mileage and you could be entitled to up to 20p per mile. While this might not seem like a lot, it’s a good incentive to leave the car at home, get some exercise and do your bit for the environment.

Magazine subscriptions There’s plenty of free information online but sometimes it just doesn’t run deep enough. As long as you can justify that these costs are exclusively for work, you can claim the expense of magazine and journal subscriptions.

TOP TIP:

Always keep receipts for your purchases as this will make claiming money back easier, you are also required by HMRC to keep a record of these for six years.

The cost of forming a limited company Working through your own limited company is one of the most popular ways for the self-employed to operate. If you decide to start working for yourself, there will be a few small costs from the offset - like paying Companies House to register the business. Don’t let this put you off though - you can claim the costs of starting your company as an allowable business expense, so you’ll be up and running in no time. Although, it’s worth noting that this formation cost would not receive Corporation Tax relief.

Bank charges If you have a separate bank account for your business (which is a must as a limited company director), you can expense the cost of any bank charges, overdrafts, interest on business loans and even leasing payments. If you’re a soletrader or you use a cash-based accounting system, you can claim up to £500 back for each financial year.

Use of your home internet Unfortunately, there’s no opportunity to expense those hours you’ve sat idly scrolling through your Facebook feed or online shopping. But for all the times you’ve used your broadband for emailing back and forth with your client and finding work, it’s an allowable cost.

Whether you’re newly self-employed or you’ve been going it alone for years, knowing what you can and can’t claim as an expense can sometimes be difficult to get your head around. Luckily, you don’t have to go it alone. With a specialist accountant by your side such as SJD Accountancy, you’ll have an expert who can assist you in all things expenses, so you have peace of mind you are claiming the correct and proper amount from your business. My Money

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INSURANCE Content provided by AO N

Cyber attacks Assessing the danger for the self-employed

t’s tempting to believe that data breaches and cyber attacks only affect large businesses. In the past that may have been the case, but today these organisations invest millions into network security. So as a result, many cyber criminals are looking for easier targets, like small businesses and sole traders. In 2017, cyber attacks affected 38per cent of businesses with less than five employees - part of an increasingly worrying trend. (Source: Department of Culture, Media and Sport’s Cyber Security Breaches Survey 2017).

The risk of a cyber attack on smaller businesses can have financial and operational consequences that some will never recover from. According to the FSB UK Cyber Resilience Report:

The chances of the self-employed falling victim to cyber crime are considerable. In fact, The FSB say that they are only 8 per cent less likely to be a victim than a micro-business of ten people.

• 66% of small businesses have been a victim of cyber crime

Mind the air gap

• On average a small business is a victim of four cyber crimes every two years • Cyber crime costs each small business victim nearly £3,000

Hackers often attack large businesses through the “air gap.” This is the space between operational technology or industrial control systems running plants and infrastructure (such as power network, manufacturing equipment and logistics fleets) and the connected world of IT systems and the internet.

My Money

Cyber criminals are finding that, rather than targeting large national and multinational businesses directly, they can target their systems through those people with access to it. Not only would the freelancer or self-employed person be liable for this type of attack, they would also find it catastrophic for their reputation. The fact is using mobile devices - personally and for business - is increasingly becoming a major threat to business security. The Institute of Risk Management set up a Risk in Information Systems and E-business special interest group to look into this, as well as other aspects of cyber security. Their report states that over 90 per cent of respondents said their organisations allowed the use of personal mobile devices for business, but only 37 per cent exercised any control over the configuration and security of these devices. For freelancers, portable technology also brings with it a cyber risk besides the malicious acts of cyber criminals. A quarter of data breaches are simply human error, such as accidentally leaving a mobile phone or tablet in a coffee shop or on public transport.

Responding to an attack Freelancers and self-employed people are at a disadvantage when it comes to disaster recovery planning. A ransomware attack can easily mean a freelancer can’t access their systems or client records. In this case, they would find it very hard to trade without a comprehensive breach response plan - which cyber insurance can provide. Loss of earnings on top of ransom costs would really rub salt into the financial wounds. Cyber insurance can also help with the expertise that freelancers and self-employed people

Autumn 2018

often won’t have access to when it comes to responding to a data breach. This includes seeking legal advice, notifying the ICO, notifying clients, providing on-going credit monitoring and developing a PR strategy. Even among those who make their living specialising in one or two of these areas, it’s unlikely they would have the personal expertise to cover everything, which is where cyber insurance can prove invaluable. Closing the insurance coverage gap Cyber risks will only get bigger. So if your business is going to properly prepare for future threats, you must identify the weak points in its defences and work out how to fix them. Some key areas of cyber insurance to think about for freelancers and the self-employed include: • Being more aware of the risk. There’s a lot of misinformation, in that people only feel the need to buy cyber insurance if they have sensitive data such as credit card, health, or personally identifiable information. That is not the case. What’s more, the potential impacts of cyber breaches are likely to extend as the international regulatory landscape tightens.

Some things insurance can’t cover Insurance is important but it won’t cover everything. Your business could incur many, often unquantifiable, costs such as reputational damage, loss of customers and IT upgrade costs. The cumulative costs of these can exceed the insurable loss many times over. You may also have to pay regulatory fines particularly since the European Union’s General Data Protection Regulation (GDPR) came into force. Under the new rules you could be fined up to 4% of turnover or €20m whichever is the greater - if regulators think you haven’t protected customers’ personal data adequately. Prepare and prosper With the right approach, you can introduce simple controls, eradicate the majority of threats, and - by getting the right insurance - make cyber-crime easier to survive. You can then safely take advantage of the huge opportunities that technology, cloud, social media and mobile devices bring to the freelance and self-employed community.

• Having the right policy in place. One reason why data assets are underinsured compared with physical assets is because, in the past, some of these losses were covered under other policies - such as property or kidnap, ransom and extortion. You need to understand what, if any, cyber coverage exists in your traditional property and casualty policies, and work with your brokers to craft manuscript cyber insurance coverage.

For further information on the issues covered by this article, please contact Aon on 0333 363 8461. Illustrations by Nicholas Solarte

This is relevant to freelancers and the selfemployed because it’s happening at a time when flexible access to data is becoming increasingly important to them. Clients are becoming evermore demanding and the ability to respond quickly is crucial. Difficulties arise because the technology used, particularly mobile phones and tablets, may not have the same level of protection as non-portable technology despite allowing access to exactly the same valuable and sensitive data.

Whilst care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it. In any case any recipient shall be entirely responsible for the use to which it puts this article. This article has been compiled using information available to us up to 30/08/2018

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My Money

OPINION

Pensions: A life full of beans for the price of a coffee By Tom Hayward

Pensions: an unattainable concept and distant concern that strikes unease and trepidation into the hearts of the UK’s population. Irrelevant of where you read your news, the pensions outlook has long been considered bleak. Unfortunately, the looming shadow on the horizon will only grow more severe unless positive change isn’t enacted, urgently, by both Government and the pensions industry. IPSE’s landmark report – ‘How to solve the self-employed pensions crisis’ – found that, with just 31 per cent of the selfemployed saving into a pension, there is an unavoidable need to act now before it is too late. The report finds that if the ‘pensions crisis’ is not addressed and the over-reliance on the state pension not alleviated, sooner rather than later we will face serious consequences as the current generation approaches retirement age. Given the absence of an employer to enrol them and the lack of control associated with it, Automatic Enrolment (AE) simply would not work for the self-employed. And without a workplace pension, too

Autumn 2018

many may rely on the modest state pension which runs the risk of increased pensioner poverty. Right now, there is a dangerous dependency on the already overburdened and heavily-funded state pension. With its long-term viability called into question in recent years, where does that leave the swathes of self-employed people who may be forced to rely on it as their primary source of retirement income? Presently, there is a dearth of pension products that are tailored to the self-employed. Despite that, the selfemployed – those who have taken on the onus of running every aspect of their business – have an obligation to be proactive, seek advice and begin saving for a secure and stimulating retirement. So, to highlight the importance of supplementary savings, My Money met two self-employed people with very different saving strategies. Meet Sarah and Martin...

Sarah is savvy. On top of her state pension entitlement, she is saving an additional £100 per month into a private pension pot. Sarah has noticed that she’s been spending a lot of money on coffee lately and has instead decided to put that cash to better use: her future. She knows that by foregoing that tall, nonfat latte with caramel drizzle every day, she is investing in something far more desirable: financial peace of mind.

+£100 per month

Martin, on the other hand, is relying solely on the meagre state pension of £164.35 per week. Both Martin and Sarah are the same age, do the same work, and earn the same annually; but Sarah has identified that making a small monthly sacrifice now will have huge benefits when she comes to retirement. For Martin though, retirement is a distant worry, and so he is instead focussing on the here and now and leaving thought of later life until, well…later life.

towards the pension pot

The cost of 40 coffees per month

My Money

*These calculations were made by Old Mutual Wealth. NB: These calculations have been made assuming the pensions triple lock is maintained, and that the long-term uprating for the triple lock is 4.6% - a figure used by the OBR. The state pension has also been adjusted in today’s real terms using an inflation of 2.5%. The calculations are also based on growth, interest and annuity rates.

Having graduated from university aged 22, Sarah and Martin are embarking on the first stages of their careers as freelance graphic designers. And, so far so good – both have invoiced for £30,000 worth of work in the first year of being their own boss. While Martin has been deterred by the lack of flexible pensions products and the complicated, inaccessible jargon adopted by providers, Sarah has decided she is comfortable enough financially to sacrifice some of her earnings. Her first step? Starting a private pension and beginning to make her regular £100 deposits. In the absence of a flexible sidecar pension scheme with the option of a “rainy day” fund – something IPSE called for in its report – Sarah’s money is locked in. But she’s ok with that - her monthly deposits add up, and as the years go by so too does the size of her private pension pot and the contributions she makes. When she reaches 30, she deposits a lump sum of £1,000, and ups her monthly contributions to £150 until she is 40. At 40, she makes a deposit of £1,500 and increases her monthly contributions to £200 until her 50th Birthday. At 50, she makes a deposit of £2,000 and begins making monthly contributions of £250 until she’s 60. At 60, she makes one final deposit of £2,500 and spends the final five years before retirement making £300 monthly deposits. Martin meanwhile, is still counting on that state pension entitlement. Now, 43 years is a long time to wait, but thankfully My Money has access to a pensions time machine. After a long and stimulating career, both Sarah and Martin are ready for a well-deserved retirement; and the experts at Old Mutual Wealth have been crunching the numbers to calculate the annual income each will have in retirement. Martin, who will have a retirement income of £13,700 per year, may be looking over slightly enviously at Sarah whose income is £19,200. It may not sound like a significant amount, but if Sarah and Martin live until they’re 82 (the average life expectancy), that’s an extra £93,500 – not a bad long-term investment! In a rapidly changing world of work, where flexibility and work/life balance are more sought after than security and the guarantees that come with employee pensions benefits, the lack of savings products that are tailored to the self-employed is a major concern.

Autumn 2018

Sarah

Martin

Age 22

£100 per month

State pension only

Age 30 £150 per month £1000 lump sum

Age 40 £200 month £1500 lump sum

Age 50 £250 per month £2000 lump sum

Age 60 £300 per month £2500 lump sum

Age 65

Retirement income £19,200 / yr

Retirement income £13,700 / yr

Age 82, Sarah earns an extra £93,500!

There is a real risk that, like Martin, more and more self-employed people who are not saving for later life will turn to the state pension as their primary means of retirement income. This is not only a problem for the Government – which according to the Office for Budget Responsibility spent £91.6bn on state pensions in 2017 – but also for the selfemployed individuals themselves.

The pensions landscape for the selfemployed is far from adequate. But there also is an obligation on the self-employed to take control of their finances and be the masters of their fate. After all, the additional £5,500 Sarah will have access to in later life is the difference between pensioner poverty and a happy, fulfilling and secure retirement.

Financial guidance Making the complex Simple.

Close Brothers has been inspiring people to make a positive change to their financial future for over 45 years. Our skills and expertise help to make complicated subjects like tax planning, mortgages, pensions, retirement and estate planning easy to understand. We are proud to be selected as the preferred Financial Planning partner for IPSE members. For more information about our programme of dedicated seminars, webinars and online financial education portal, visit: membership@ipse.co.uk

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Telephone calls made to any member of Close Brothers Asset Management may be recorded, Close Brothers Asset Management is a trading name of Close Asset Management Limited (Registered number: 01644127). Close Brothers Group plc, registered in England and Wales and authorised and regulated by the Financial Conduct Authority. Registered office: 10 Crown Place, London EC2A 4FT. ÂŠ Copyright Close Asset Management Limited 2017. CBAM4938 Jan 18

My Money

OPINION

Ask Iona Iona Bain is the founder of the Young Money Blog, the first and only British blog dedicated to young people’s finances.

I’m ready to build my freelance web design business. The only issue is finding clients. My portfolio is full of self-directed projects, and most people are not willing to take a chance on someone who has no credible experience yet.

Is it worth doing the job for free or should I leave it alone and keep looking for paid roles?

This is a toughie. On the one hand, freelancers entering desirable, packed industries may decide that working for free is necessary if they want to gain crucial experience and make a name for themselves. What about charities or disadvantaged individuals? It is the rare freelancer who doesn’t want to put their skills to social good and is motivated purely by financial gain. On the other hand, working for nothing will make it harder to establish and progress your freelance career in the long-term. That much vaunted alternative to cash – “exposure” – is impossible to measure and it isn’t accepted by landlords, mortgage lenders, supermarkets and utility companies the last time I checked. Unpaid work is also bad for the whole freelance eco-system. It drives down pay, expectations and standards across the board. Allowing companies to ascribe zero value to your skills and time undermines your all-important self-esteem and reputation. So there is as much a moral case for refusing unpaid work as there is a practical one.

Autumn 2018

Unpaid work is also bad for the whole freelance eco-system.

I did come across one job that looks interesting – it’s the type of project that I’d like to do more of, and would look great in my portfolio. However, when I spoke to them they told me it’s not a paid role. I’ve been told to be wary of this type of job offer, but there’s a possibility it could be my chance to get in the door.

For commercial clients, only the smallest of workloads, for the most tangible of alternative benefits (e.g. a massive profile boost), can ever justify unpaid work, whatever stage you’re at. Far better to spend time marketing yourself to companies you know will pay you. Beware those that ask for meetings, request that you attend pitches or send over detailed proposals without any mention of pay. At the very least, ask about expenses – this usually sorts the wheat from the chaff. Reserve your professional generosity for those that need it. Build in an affordable pro-bono buffer so you can say “yes” to genuinely charitable requests, especially as you become more successful. Also, keep an open mind about voluntary initiatives, campaigns and networks within your industry. So long as everyone else is participating on the same terms and you keep the commitment manageable, you could open up a whole new world of exciting (and paid!) opportunities.

If you have a finance question for Iona, please get in touch at: mymoney@ipse.co.uk 19

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0208 897 9970 My Money

OPINION

costly mistakes to avoid when starting out as a freelancer BY TIM BR ADBURN

1: Spending too much money to launch One of the mistakes I made early on was to invest heavily in branding materials before I understood my potential clients’ needs in enough depth. I spent a lot of time and money working with a designer to craft a slick logo, a carefully considered brand style-guide specifying the right colours and fonts, a sophisticated website and quality business cards. I’ve since seen numerous freelancers make the same mistake. Why is it a mistake?

When I started working for myself 16 years ago, I faced a steep learning curve. Like many first-time freelancers, I launched into my new life with buckets of excitement, and a dollop of blissful ignorance!

Because when you’re starting out, you’re invariably working with assumptions about who your potential clients are, what they want and how to reach them.

Since then, I’ve re-invented and re-launched my freelance business many times over, and learnt a lot in the process. If I were to start again from scratch, these are the financial pitfalls I’d look out for.

Once you get out into the marketplace, you often find that the reality isn’t quite what you imagined. Even if you did prior market research, there can still be surprises down the road. You might have to go back to the drawing board and scrap all of your lovinglycrafted materials! This cautionary tale is explained in The Lean Startup, the bestseller by entrepreneur Eric Ries. He advocates launching any new business with a Minimum Viable Product (MVP). This means putting together a basic offer and inexpensive marketing materials that allow you to test the market first. You could launch your business with nothing more than your LinkedIn profile, or a simple website using a tool like wix.com, so you can get going quickly and gain valuable feedback.

Autumn 2018

That’s not to say that well designed branding won’t help you build your credibility – of course a great website can help you win work. But it’s best not to spend too much until you understand the real drivers of your business. Once you do, you’ll be in a stronger position to invest in your brand. 2. Undercharging One of the most common rookie errors is to equate your freelance fees with the salary earned by full-time employees. You can’t compare the two, because the amount you end up with in your pocket is a lot less than the amount you charge. For example, if a freelancer charges £450 a day, it might appear that they’re making the equivalent of a six-figure salary. However, that’s not the case, because the fee has to cover: a. Labour costs (time to do client work and admin, plus downtime);

b. Fixed costs (such as accountancy fees); c. Variable costs (such as travel or materials); d. Taxes and National Insurance Contributions; e. Profit. So by comparing fees with salary, you’re not looking at the whole picture. And if you think that freelancers don’t have to worry about these things, think again. A freelance business is a business like any other. If you work from home it’s surprising how fast the costs add up just through wear and tear. Many other items are invisible when you work for someone else. Even if you work at the client’s office you still have to factor in additional expenses. For example, your business has to make a profit over and above your living costs to cover things such as holiday and sick-pay, and any downtime you might have between projects. It’s important not to fall into the trap of charging too little. You should charge how much you need to earn plus how much your business needs to earn. When deciding how much to charge, it’s best to be bold. We tend to have a more rigid idea of the ‘market rate’, than our clients do, when in fact they may be willing to pay quite a lot more than we think.

When deciding how much to charge, it’s best to be bold.

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As a rule of thumb, you want about 20 per cent of potential clients to turn you down because you’re too expensive. If you’re winning every project you pitch for, it could mean you’re too cheap! 3. Messy money management Paying more tax than you’re legally required to is a terrible waste of money – money that you need to bankroll your business. So how do new freelancers end up paying too much tax? People often end up paying too much by not staying on top of the incomings and outgoings.

How do new freelancers end up paying too much tax? By not staying on top of the incomings and outgoings.

It’s essential to have a proper system to record your finances, including invoices and expenses. There are many bookkeeping tools, such as Quickbooks, to make the task that much easier.

If you’re working on an ongoing contract, you could invoice monthly. If it’s a project with a defined end-point, then it isn’t necessary to invoice the whole lot at the end. You could agree 50 per cent up-front and 50 per cent at the end. And although 30-day payment terms are common, it’s perfectly acceptable to request

Autumn 2018

5. Getting employment status wrong Employment status determines whether you should pay tax as a self-employed person or as an employed person.

For them to see you as genuinely self-employed, you need to show that you’re running a business providing services to clients, rather than being a pseudo-employee of the client. If the tax authorities suspect that you’re not genuinely self-employed, they could launch a lengthy tax investigation.

4. Getting slack with cash flow

When will you receive the money? Have you agreed an invoicing schedule?

If you still find that an overdue invoice isn’t being paid despite repeated reminders, you have the right to charge interest.ii

Problems arise if the tax office challenges your employment status, because they think you’re not genuinely self-employed.

It’s vital to keep personal and business expenses separate – under no circumstances should you claim personal expenses against tax, or you can incur hefty penaltiesi (as one acquaintance discovered after claiming a hotel bill which he justified as business because he went skiing with his accountant!).

So as well as recording the incomings and outgoings as per the previous point, it’s important to pay attention to timings.

If you find that payment isn’t forthcoming, there’s nothing wrong with nudging the accounts department. Large companies can have rather slow internal processes, and don’t usually object to a polite phone call to remind them that an invoice is overdue.

Get this wrong, and it can be very expensive indeed!

This allows you to keep track of everything, enabling you to offset legitimate expenses against tax, so that you don’t pay more tax than you have to.

Another pitfall is to get absorbed in the work and lose track of when the cash is coming in.

payment within seven days instead. Agree upfront the terms that work best for everyone, and then state them clearly on your invoice.

If you still find that an overdue invoice isn’t being paid despite repeated reminders, you have the right to charge interest.

If you’re a sole trader, and you fail the tax investigation, it can result in your client being liable for additional tax and penalties. If you’re running a limited company, you would have to pay up under the IR35 rulesiii. Either way it’s a costly mistake, so it’s vital to read up and understand the rules around IR35 and employment status before signing a contract or starting a project with a new client. So if you’re planning to start your own business, keep these five points in mind and it will help you maintain a healthier bank balance!

Tim Bradburn is an independent business consultant, member of IPSE’s Consultative Council, and author of several publications, including ‘Be Your Own Boss,’ IPSE’s guide to freelancing.

i. To understand which expenses to claim, download, ‘Be Your Own Boss’ at www.ipse.co.uk/ resource/guide-tofreelancing-v4-pdf. html ii. See www.gov.uk/ invoicing-andtaking-paymentfrom-customers/ payment-obligations iii. Download IPSE’s guide to IR35 at www.ipse.co.uk/ resource/guide-toir35-v1-pdf.html

Looking to switch accountants?

Join SJD Accountancy and weâ&#x20AC;&#x2122;ll waive your balancing fee For more information call 01442 275789 or visit sjdaccountancy.com/switching-accountant 24

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ASSET MANAGEMENT Content provided by C LO S E B R OT H E R S

Now or later?

e have greater responsibility than ever when it comes to planning for retirement. The move away from final salary pension schemes has put the onus on individuals and created confusion and uncertainty. Research has shown that many people do not feel prepared, are not making realistic plans for living past retirement age, and are not investing in the financial advice that could help them to enjoy a comfortable retirement. The situation is particularly profound for younger generations, who will have to plan carefully to achieve financial security in the future. As we give more responsibility to the individual, it is important that we understand why some people choose to invest and others do not. Even among individuals with similar lifetime incomes, there is huge variation in terms of wealth accumulated by retirement age. Research by Henrik Cronqvist, Professor of Finance at the University of Miami, and Stephan Siegel, Professor of Finance and Business Economics at the University of Washington, has shown that this variation isn’t reliably explained away by life events such as inheritance or health, or by asset allocation choices. Behaviour related to savings earlier in life, however, seems to have a bigger effect. But what drives this behaviour? Why is it that some people are able to plan ahead and scrupulously save, while others only live in the now? The marshmallow test When it comes to our finances, we can all suffer from a lack of self-control. We want to Autumn 2018

save for tomorrow and spend today. Individual differences in self-control, or the ability to delay gratification, have been well-documented. In 1989, psychologist Walter Mischel and his colleagues used the ‘marshmallow test’ on a sample of pre-school children. During the experiment, they presented each child with a plate of marshmallows and then left the room. The child had the option of eating two marshmallows when the experimenter came back, or ringing a bell at any point and eating one marshmallow. Some children were able to wait; others were not. Similarly, some adults can easily resist spending their salary on new clothes, cars and holidays and save for a comfortable retirement instead, while others cannot. Interestingly, those children who took part in the marshmallow study were tracked down by researchers some 30 years later and their willpower tested again. The differences in self-control had largely persisted over the decades. Perhaps you have noticed similar behaviours in your own younger family members. The differences have been documented, but where do they come from? Genetic differences Scientists study identical and non-identical twins when they want to explore the effects of nature and nurture. This is because identical twins share 100% of their genes and the same environment, while non-identical twins share 50% of their genes and the same environment. If identical twins behave significantly more similarly than non-identical twins, this is taken as evidence that the

behaviour is at least partly down differences in time preferences or to genetics. A 2010 study, by self-control. Cronqvist, Siegel and Amir Barnea, Associate Professor of Finance at So, what can you or members of HEC Montréal, found that genetics your family do if you struggle to accounted for about one invest for the long term? third of the differences in Just as it is possible to stock market participation stop smoking, or to start and asset allocation. That eating more healthily, is to say, there is a genetic it is possible to start When it component involved in the saving and investing comes decision to invest, as well for the future as well. as in the decision as to what Individuals can make small to our to invest in. behavioural changes that finances, may have a big positive we can A further study of twins, impact on their shortby Cronqvist and Siegel, and long-term wealth. all suffer has also shown that For example, you could from genetics influence saving encourage the younger a lack behaviour. The researchers generation to make saving found that people are born the norm and overcome of selfwith a persistent genetic their overspending by control. predisposition towards suggesting that they take specific saving behaviour. advantage of ‘autopilot’ While parenting has an systems, such as automatic effect on young children, pension contributions. Or this dissipates as we grow you could recommend they up. The study found that savings speak to a financial planner who behaviour is genetically correlated can help them to clearly map out with smoking and obesity, which a journey to achieve their desired again suggests it is driven by financial future. 25

FIND OUT MORE ABOUT SAVING FOR THE LONG TERM, CALL CLOSE BROTHERS ASSET MANAGEMENT ON 0800 028 0208. PLEASE BE AWARE THAT THE VALUE OF INVESTMENTS CAN FALL AS WELL AS RISE.

Genetics help to explain why some people find it easier than others to save and invest for the long term

WINNING WORK Content provided by THE WORK CROWD

How to charge & raise your freelance rate ADVICE FROM THE WORK CR OWD

To avoid those scenarios, consider these different approaches to charging for your work.

reat news! You’ve decided to make the move from permanent employment to freelancing. Starting out as a freelancer is an exciting career transition, but there are some key decisions you’ll need to make before you get started. Here at The Work Crowd, we’re more than just an online platform connecting freelance marketing communications professionals to client projects. We are a community supporting one another in our freelance careers. Since our inception in 2014, we’ve worked with over 2000 freelancers, helping them win and engage with new business.

Our community is always coming Pay as you go (aka billing by to us for advice, so here we’re the hour) providing insight into two of the most common questions we receive: ‘how should Perhaps the simplest I charge for my option is to invoice freelance work?’ and based on the time you ‘how do I increase my work, using a set daily Many freelance rates?’ or hourly rate. Quoting freelancers your day rate is perfect for agencies, as the How to charge find it a majority already work for your work this way. This avoids the nervedanger of over servicing, When it comes to wracking as you’ll be compensated valuing your service for overtime or additional and expertise, many experience. work. freelancers find it a nerve-wracking This doesn’t tend to work experience. Getting it so well with brands. In wrong can come back many cases, particularly where to haunt you, either when you’ve startups and small businesses are committed to a project paying concerned, an external consultant peanuts, priced yourself out of is a big financial commitment and the market, or left the client they want to control the budget feeling short-changed.

and output. Smaller businesses have less understanding of how long activities take, making it difficult for them to calculate value for money. In our experience, taking a ‘pay as you go’ approach with brands usually ends in one of three ways: failing to win the business; getting pushed down on price by a client who is nervous about the cost; or the relationship ending prematurely with a dissatisfied client. Fixed retainer and project fees The alternative to ‘pay as you go’ is agreeing a fixed budget upfront, based on the client’s objectives and desired outcomes. If a client wants long-term, ongoing support then this would come in the form of a monthly retainer fee, whereas a distinct project would likely be quoted separately. A day rate allows you to calculate the project cost based on how long you anticipate it taking and communicating this to your client My Money

EFFECTIVE STRATEGIES TO INCREASE YOUR RATE

New versus existing clients

if required. Many clients like to understand how you’ve arrived at a particular figure as it gives them an idea of how much additional work will cost. A potential downside of agreeing to a retainer or project fee is the risk of over servicing. To avoid this, always agree the scope of work in writing at the start, making it clear that additional work will be costed and charged separately. It’s best to be over generous with your timescale. There’s nothing worse than clocking up excess hours for nothing!

You’re also likely to find that bigger clients feel more comfortable paying a bit more.

If you’re unsure which charging option is best in a certain circumstance, you could ask the client what they prefer to ensure you both are comfortable with the choice. Ready to increase your rates? Unlike permanent employment, freelancing means no promotion, Christmas bonus, or annual review with your boss. Instead, you have to carefully balance your need to win and retain business with commanding what you’re worth – and not working all hours to get it. Autumn 2018

Obviously, it’s easier to increase your rates when you bring on new clients than amongst long-standing clients. Many freelancers start off charging a lower rate to win those first bits of business, but this means that you can be stuck with lower rates, even as your experience and quality of work improves. In the long-term, this can significantly limit your earnings. In contrast, if you have a high turnover of projects, you have more opportunities to experiment with your rates as you’re regularly quoting for new projects. If clients are easily agreeing to what you suggest, then go a little higher for the next project. You can be bold with your rates when you’re busy or for projects that don’t interest you. You may be surprised to find clients readily agreeing to your higher rate!

Increasing your rates can be daunting, but it’s a vital part of running a successful freelance business. Not only will it ensure you earn more, it will also help you work fewer hours, do more interesting work, and deliver higher quality. You’re also likely to find that bigger clients feel more comfortable paying a bit more, seeing it as a sign of greater professionalism and a higher standard of work. If you’ve been putting it off, make sure a rate review is one of your top priorities for 2019.

Increase the value you offer • Expand your services: for example, offer advice on messaging and tone of voice alongside copywriting. • Offer strategic guidance, taking the burden off your clients and helping them to deliver better results for their business. • Link your arguments back to return on investmentBuild a team.

Build a team • It increases the skills on offer, the project size you can take on, and the amount you can charge. • Outsource small projects to a more junior freelancer, giving them useful experience for their portfolio and freeing you up to focus on higher value, more strategic work.

Cut down your hours • If you have more projects than you can handle, this is the perfect excuse to boost your rates. • You may lose some projects in the process, but you will hold onto those with the rates that you’re after – while giving you the time to focus on winning more at your higher rate.

Charge by the project • Break down the costs, not into hours or days, but into the services and value you’re delivering. You’re likely to find clients respond more favourably and feel better about signing off the budget.

Annual increase • Base an increase on inflation, market rates and the greater experience you are now able to offer. • Do this at a time that makes sense, e.g. end of the calendar or financial year. • Give clients one or two months’ notice ahead of the change to allow for negotiation or time to replace the client if needed.

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M O R TG A G E Content provided by CMME

Monster Mortgages ASK THE EXPERT

onster mortgages are a strong topic of conversation in the media at the moment, but the jury is still out on the verdict. Some are relaxed about the topic, while others worry it’s a sign of ‘reckless lending’. Before the financial crash in 2008, there were many jumbo mortgages and 95% or even 100% loans, but the industry changed a lot after the crash and required buyers to have a large deposit. However, it has recently been announced that Clydesdale Bank will grant a first-time buyer a mortgage of 5.5x their income amount, with the potential to borrow up to £600,000 and in some cases with as little as a 5% deposit. This may sound like a good deal for first-time buyers looking to purchase a house in some areas of the UK, but the question remains; are these mortgages all they’re cracked up to be?

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For some time, the upper limit a buyer could borrow was between 4 to 5 times their income, but in most cases, they would need a 10-15% deposit to match this amount. The increase in borrowing potential for first-time buyers and minimal deposit required for the Clydesdale product offering does rely on the applicant earning an income of at least £40,000, and as with all mortgage applications, eligibility will depend on an income and expenditure assessment to assess affordability for each individual case. To dig a little deeper into these monster mortgages we’ve asked one of our experts, Associate Director Simon Butler, to answer a few of the burning questions around the monster mortgage, and shine a little light on how tangible these mortgages actually are.

Q: Is a monster mortgage for me?

A: This will completely depend

on your present financial circumstances and your future, particularly with regards to any changes to your personal finances and career. Mortgage lenders have taken the decision to relax affordability criteria to allow borrowers the chance to secure funding that would otherwise have been out of reach, but your finances will still be thoroughly scrutinised before a mortgage is offered. Unsecured debts such as credit cards can significantly reduce the level of borrowing available, so just

How does a monster mortgage work?

While mortgage lenders claim to no longer utilise income calculations to assess the lending limits of a borrower, they do retain an element of this process when assessing affordability. To fall in line with the Financial Policy Committee and the Financial Conduct Authority’s requirements for sensible lending, the banks now profess to confirm a borrower’s limit by offsetting all acceptable income against a variety of expenditures. These can include, but are not limited to, regular bills such as council tax, utility bills and general living costs such as food and clothing.

Q: Who can apply for a monster mortgage? A: Mortgage lenders tend to suggest that these options because a lender offers the potential to raise the equivalent of 5.5x your income, it does not mean to say that the loan will be available to all. Several other factors such as financial dependants and age can work against you. Meanwhile, such a large mortgage loan may be affordable at present, but if you plan to change career or reduce the level of your earnings in the future this could impact your ability to refinance the mortgage in later years. Lenders regularly review criteria, so while a mortgage may be affordable today you could be forced to remain with the same lender on less competitive interest rates because no alternatives are available later on.

are available to any borrower that can confirm full affordability of the loan, while also being able to prove stability to cover the impact of any interest rate rises if market conditions worsen. Clydesdale Bank have been up front in positioning their own offer by confirming that their higher lending multiples are “available for a very small group of highly qualified customers.” Reading between the lines, this would suggest a focus on those borrowers receiving an income within the higher rate of tax banding will have a better chance of being successful when applying.

The tests also factor in any secured debts, such as mortgage repayments for additional properties and any other unsecured debt, such as credit cards, personal loans and hire purchases. Many lenders also regularly check for school fees, as these will also be deducted from the income. Once the figures have been assessed each lender will apply their own income multiplier to confirm the level of funding on offer. As has been noted in the case of Santander the level of borrowing being offered has reached as high as 5.5x income, although this would only be available if the client had very little debt or other committed expenditure.

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What are the pros and cons of a monster mortgage?

A: The access to borrow a higher level of funding is great news for anyone looking to purchase in hotspots such as London and Bristol. Securing the level of funding required to buy property in these areas has been tough in recent years, but the option to take a bigger mortgage will appeal to many borrowers with the expectation of seeing future income increases to continue covering the mortgage repayments.

The major drawback to raising such a large mortgage will be maintaining the debt and sourcing competitive interest rates to keep the repayments as low as possible. Santander may be happy to lend 5.5x your income, but another lender may not be so keen in two yearsâ&#x20AC;&#x2122; time when your fixed rate expires and youâ&#x20AC;&#x2122;re shopping around for alternatives. Likewise, a change to your personal outgoings or income could also prevent you from sourcing better terms for the loan.

Q: What are the alternatives? A: Increasing the term of

the mortgage can be the best alternative if a lender is restricting the borrowing on offer. By stretching the repayments over a longer period many lenders will increase the mortgage limit. In addition, a considerable number of mortgage lenders will offer higher lending limits if the borrowing is secured alongside a long-term fixed rate. If you are open to locking into a five or ten-year fixed rate many mortgage lenders will raise the borrowing limit given the added security this provides. As the debt will not be impacted by market conditions for a significant period of time you will find that lenders are willing to take a positive view to higher lending limits. If you would like to find out more about the monster mortgage or speak to one of our consultants about buying your first home, either call us on 01489 555 080 or email us at enquiries@cmme.co.uk.

Alternatively, if youâ&#x20AC;&#x2122;re looking for more information about acquiring your first mortgage, you can find our first time buyer guide: cmmemortgages.com/guides/first-time-buyer-mortgage-guide

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IPSE are not authorised to offer regulated mortgage advice. IPSE are introducers to CMME. Your home may be repossessed if you do not keep up repayments on your mortgage. CMME is a trading name of CMME Mortgages and Protection Limited. Authorised and regulated by the Financial Conduct Authority (FCA reg. 414798). Registered in England No. 04886692. Registered Office: Albany House, 5 Omega Park, Alton, Hampshire, GU34 2QE. Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. Calls may be recorded for training and security purposes and to improve the quality of our services.

ONLINE MARKETING Content provided by PAY PA L

What’s in a name? You want your domain name to be memorable, easy to find, and easy to promote. Perhaps surprisingly, your business name might not be the best name for your site.

Make it easy to type

Keep it short

‘Creative’ spelling (e.g., Xperteez) can make it hard for customers to find your site.

Short names are more memorable.

Be unique

Avoid numbers and hyphens

1-2-3

Be memorable There are millions of domain names out there – you want to set yourself apart.

Choose your extension(s)

.com

.org

.co.uk

.net

.biz

Some have specific uses (e.g. .ORG and .ORG. UK are for non-profit organisations). Consider purchasing many or all of the available extensions for your name – you don’t want a competitor launching a .NET version of your .COM website.

It can feel like ‘all the good ones are taken’. Do some searching. When you buy your domain, the registrar will confirm that your chosen name is available.

Consider keywords

They can make your domain name tough to remember, or confuse people who hear about you through word of mouth.

Keywords are phrases that describe what you do. Include terms that people enter when searching for your product category (e.g., ‘Dublin coffee’). This can improve your search engine rank and increase traffic to your site. Check out the Google Adwords Keyword Planner when coming up with possible names.

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QUIZ

Quiz

We hope we’ve given you plenty of useful tips and helpful facts so you can flex your finance muscles. Why not test your knowledge by taking this quiz? All the answers are within the pages of this magazine.

What is a pay as you go rate? a. When you set your rate by the day or hour b. When you don’t receive any money until the project is done c. When you charge upon completion of each stage of the project

Can you expense protective gear? a. No, it’s not allowed b. Maybe, depending on your work c. Yes - it’s mandatory

True or false - the longer your website domain name, the better.

Is it wise to equate freelance fees with employee salaries?

a. True

a. Yes - they’re the same

b. False

b. No - they’re different

What’s the aim of the ‘marshmallow test’? a. To test softness b. To test self-control c. To test how many marshmallows you can fit in your mouth

For how long do HMRC require you to keep receipts? a. One year b. Four years c. Six years

Which bank has announced that it will offer first-time buyers loans of 5.5 times their income, for a small deposit? a. HSBC b. Clydesdale Bank c. The Bank of Wales

What can cost small businesses nearly £3,000? a. Being a victim of cyber crime b. Hiring a social media consultant c. Administration fees

T U R N T H E PA G E T O C H E C K Y O U R A N S W E R S

Autumn 2018

Answers

Answer: A A pay as you go rate is when you charge a daily or hourly rate. Read more on page 26

Answer: B This is only applicable if you’re required to work in potentially hazardous conditions. Read more on page 9

Answer: B They’re not they same, because a freelancer’s fee has to cover other costs, such as taxes. Read more on page 22

Answer: B This is false - shorter names are easier to remember. Read more on page 32

Answer: B Scientists assessed the willpower of children by seeing if they were able to control themselves from eating marshmallows. Read more on page 25

Answer: B Clydesdale Bank announced that it will be granting ‘monster mortgages’. Read more on page 29

Answer: C HMRC requires you to keep receipts on record for six years. Read more on page 10

Answer: A Cyber crime costs each small business victim nearly £3,000. Read more on page 12

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Autumn 2018

You are unique We think your mortgage should be too. Being a freelancer takes guts, but the freedom, flexibility and financial benefits can be priceless. When it comes to obtaining a mortgage however, you could be penalised for being self-employed, as banks and lenders do not always look at your income holistically or consider your true borrowing potential. We are CMME - the UKâ&#x20AC;&#x2122;s leading mortgage specialists for freelancers, contractors and the self-employed. Deals designed exclusively for self-employed professionals Borrow up to 5 x your annualised income Access to some of the most competitive rates in the market Experts in complex income CMME has helped over 25,000 clients get the right mortgage for their individual needs. Weâ&#x20AC;&#x2122;d love to help you too!

Visit cmmemortgages.com

Or call 01420 592 642

Your home may be repossessed if you do not keep up repayments on your mortgage CMME is a trading name of CMME Mortgages and Protection Limited. Authorised and regulated by the Financial Conduct Authority (FCA reg. 414798). Registered in England No. 04886692. Registered Office: Albany House, 5 Omega Park, Alton, Hampshire, GU34 2QE. Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. Calls may be recorded for training and security purposes and to improve the quality of our services.