Serving professional journalism since 1912

Magazine of the Chartered Institute of Journalists

Starting Your Own Business

With so many changes in the world of journalism in recent times, there may be many considering a change to becoming a self-employed freelancer, or indeed, have had that position imposed upon them. We thought a guide to starting your own business could be helpful if that’s the case.

Becoming a freelance journalist or photographer is a big step. Getting commissions for your work from editors is exciting, and essential if you are to make a living… as is managing the financial aspects of your new business.

Deciding whether to be self-employed or start your own Limited Company is the first choice to be made. It’s an important decision because your legal responsibilities and reporting requirements differ for each. In both cases there are essential initial actions to take if you are to start your new business on a sound basis.

Becoming self-employed: You should immediately register your new business with HM Revenue & Customs (HMRC) to advise them that you are now self-employed. Registering with HMRC will create an account for your payment of income tax and National Insurance (NI) on your self-employed earnings, the payment timings and methods of which are different from when you were an employee.

Setting up a Limited Company: A new company must be registered with Companies House. The process requires very specific information about who owns the company, its financial structure and how it will be run. When successfully registered a new legal entity is created that has its own reporting requirements and tax regime. Services of an accountant are essential if you are to keep on top of making sure your new company – and you as its principal director – meets all its reporting and tax responsibilities while you generate revenue for the business. As a director you must also complete a self-assessment tax return. A Limited Company needs to have a bank account in its name.

Record keeping: in both instances you should immediately begin keeping detailed and accurate records of income and expenditure, for which you have become responsible for reporting. Get into the habit of noting down all your expenses as they occur rather than waiting until you have to complete your tax returns to try and remember what you spent. HMRC’s website area on starting a business (https://www.gov.uk/working-for-yourself/overview) provides detailed guidance on what expenses are allowable deductions from your income to determine the amount of tax you will pay. Whether you complete your self-assessment yourself, or pay a professional (accountant or bookkeeper) HMRC require you to keep records for up to 6 years of expenses and proof that you incurred them.

You’ll also have to register for VAT if your turnover exceeds the prevailing level HMRC set for compulsory registration – £83000 per annum for 2016.

Budget Planning: Your financial patterns are about to change from what you’ve always known as the norm. In order to receive income you need to issue invoices, which are not always paid as quickly as you’d like. I’ve known editors ‘buy’ an article for an agreed fee, but not pay for it until the piece is published. For example, a travel article may not be used until it’s the appropriate season to have a special edition focused on the destination your work relates to.

Planning to meet your existing financial commitments starts with recognising what those commitments are. I’m no longer surprised by how many people in my starting your own business workshops have no idea of their total regular outgoings. Some of these are fixed obligations (eg. mortgage or rent, council tax, utilities, insurances, any contracts such as broadband supply or mobile phone) and some will be more discretionary (groceries, entertainment, leisure activities and holidays amongst others).

It’s always a good exercise to complete this analysis anyway. It’s absolutely essential when starting a business. Knowing what money you NEED to have to cover your expenditure helps identify where that money will come from in the early days, as well as areas where you might adjust your spending.

Then add in the costs you are going to incur in carrying out your work – travel, subsistence, equipment, insurances (see below) professional membership subscriptions and so on.

In general, when starting your business you should have sufficient funds available at outset to cover at least six months of your regular household and business expenses.

Your budget planning will run hand in hand with your marketing plan. You should begin to work out what revenue you need to generate – and from where – for the work you do. You’ll probably know which organisations more regularly use freelancers. You’ll also know the (seemingly ever decreasing) going rates for different types of media. Whilst this document doesn’t address marketing ideas, developing a plan of potential sources of income brings focus to your marketing effort that will shape your financial planning too.

Insurance: Whilst public liability insurance is not compulsory, it is eminently sensible to have. If in the course of your work you cause some sort of problem for which the party affected is awarded compensation it could radically affect you and your loved ones if you don’t have appropriate insurance cover. Similarly, Professional Indemnity insurance is advisable, in case, for example, you infringe another’s copyright (even inadvertently) or write or say something deemed to be libellous or slanderous. Be aware though that most providers of such insurance will not provide such cover for anyone whose business interests include journalism, considering the risk too high. There are specialists who will cover journalists though.

If you have any employees, including casual workers or temporary staff, you’re required by law to take out employers’ liability insurance, currently to a minimum level of £5million. It covers claims from employees who’ve been injured or become seriously ill as a result of working for you.

Tax and National Insurance

When you were employed your tax and NI were accounted for you by your employer each time you got paid. Now that you run a business, everything has changed…

Self employed: Although in general you’ll pay tax twice yearly, usually in July and the following January in relation to each tax year, your first tax bill as a self-employed individual could be a very long time after you register as self employed, and could seem surprisingly high.

For example, if you became self-employed on June 1, 2016, tax on profit earned between June 1, 2016 and April 5, 2017 will be payable by January 31, 2018. At that time you’ll also have to make an interim payment on profit earned for the first six months of the 2017-2018 tax year, which will normally be half the amount of the 2016-2017 tax year’s bill. Added to that are Class 4 NI contributions based on the profit earned.

Which effectively means you will be paying tax in January 2018 on profit earned up to 19 months previously in one hit.

It is essential to remember that revenue invoiced is not your available earnings and should not be spent in full as it comes in. I always recommend that newly self-employed people get in the habit of putting away at least 25% of their revenue as soon as it is received, in a separate place from their day-to-day business bank account, so that when their first tax bill arrives they can easily pay it. In these days of low interest rates on savings you might consider buying premium bonds with that 25%. These are completely secure and accessible quickly – and your savings towards tax might even make you a millionaire. It’s a habit that should be continued to ensure subsequent years’ tax bills can easily be paid.

Limited Company: When your company was registered a financial year end date for it will have been set. The company must pay corporation tax on its profits no later than 9 months after its declared year end. Directors must submit a self-assessment return and pay any tax due on income earned as any other individual taxpayer does – by January 31 in the following tax year. If the company employs staff, income tax and NI on their earnings must be collected and paid monthly by the company. Your accountant will normally offer a service to do this.

Whether self-employed or a Limited Company, I would always recommend using the services of a professional to ensure you make the most of the available expense allowances that legitimately reduce your tax liabilities. But who to choose?

A recommendation from someone you know who runs a similar size business is always a good place to start. Balancing the cost of professional advice against your turnover is sensible too, as even a relatively small accountancy practice need to cover their staff and offices expenses within their fees, so can seem disproportionately expensive to a small business owner. A bookkeeper may not provide tax advice, but if your affairs are fairly simple may be all you need. There are now online accountants who provide relatively low cost service that ensures all reporting requirements are met and tax liabilities are minimised. I’ve never met my online accountant, although I know in return for his monthly fee (less of a shock than annual payments) he’s on the end of a phone if I need him for specific advice, prompts me well in advance to provide information he needs to submit to HMRC as my representative, then tells me how much to pay and when to do it by – and when I forget, reminds me before I get fined.

Even if a customer is what you might consider a prompt payer, they are not likely to process your invoice for at least a month after they receive it. So make sure you send invoices promptly and that they include the date by which you expect it to be paid.

Many large organisations routinely sit on invoices for 2-3 months before making payment, irrespective of the terms stated on them. This makes the contract you strike with your customer very important from the outset. Always ask what terms of payment they normally apply. If their norm is 2-3 months (or more as highlighted above where payment is on publication) you need to factor into your price a cost for the delayed payment.

It’s always a good idea to take responsibility for recording what terms are agreed with your client. Send an email detailing price, any conditional aspects such as deadlines, payment terms and expected output. If you then need to chase a customer for payment you have the high ground, in that you are doing no more by chasing payment than what was agreed.

Never lose your temper over payment – there’s always the next commission to think about. Even though at the time you won’t be talking to your key customer (the commissioning editor), there’s a good chance the accounts payable clerk might feed back any conflict to people who matter to your future earnings. I find starting a conversation with finance people by asking for their help is often a disarming way to accelerate payment of your outstanding and future invoices.

There’s no doubt that starting a business is exciting. It brings with it responsibilities and challenges. Ultimately, a business only fails for financial reasons, so give your fledging business the best chance of succeeding by organising your finances properly from the outset and continue to practice good habits as your business grows.

By Ken Skehan