“Come and file your self-assessment tax return — ON A SKY DIVE!”

When this offer from an online accountancy service pinged into my email inbox, I was curious. I am one of nearly 5m self-employed workers in the UK who must complete a tax return by January 31.

Our numbers have rocketed by 45 per cent since 2001, driven by rapid improvements in technology and a shape-shifting labour market. Like many ambitious millennials, I seized on these changes. I quit my job to turn my side hustle — the Young Money Blog — into a career as a freelance journalist.

Now it seems everyone under the age of 40 wants to work flexibly, be their own boss and run a start-up from a WeWork office with exposed brick walls and free beer on tap.

But this image of empowered hipsters masks a complex reality. Self-employment takes many forms, from highly-skilled entrepreneurs to hazily defined gig workers and those on zero-hours contracts. The patchy nature of our income is often a big problem, especially for young people and low earners.

Then there is the financial minefield of running a small business: working out how much to charge clients, sending invoices, chasing payments, tracking expenses and, of course, that all-important tax return. Surely anything that makes all this easier should be embraced?

Enter our airborne accountants, with the bold claim that their online service is so straightforward it can be used 12,500ft in the air. On second thoughts, I’d rather keep my feet on the ground. But to help my fellow time-poor and maybe cash-poor freelance workers, I put some of these digital marketing claims to the test. How do these slick looking apps compare with old-fashioned methods?

Digital upload

There’s no doubt that freelance fintech is taking off. A welter of digital start-ups are targeting their services at tech-savvy freelancers. Some are yet to launch formally, but others have already been snapped up by banking giants, such is the buzz around their potential market.

With eye-catching advertising and funky names, app-based services such as Coconut, Asto and Albert are aimed at a younger generation of workers who cannot afford a traditional accountant but fear the complexity of the do-it-yourself route.

This new generation of apps can help freelancers track their mileage, snap their receipts and even flag up and hunt down their unpaid invoices. Some will walk you through your tax return, monitor your cash flow and suggest better ways of managing your time. Short of feeding me breakfast, these apps promise to take care of nearly everything.

My new year resolution was to find out whether they would offer me a better way of managing my business finances. My current methods are somewhat old-school: a little red Silvine cash book, digital spreadsheets, some help from my trusted adviser (who also happens to be my dad) and choice words when a client doesn’t pay me on time.

When I asked my freelance friends how they did things, I felt positively prehistoric. Katy Carlisle is a web designer and freelancer of five years. Tatty shoeboxes stuffed with receipts just won’t do — she insists the modern freelance needs a “suite of technology”, all fulfilling different needs. That means logging into five apps every day. Blimey.

First, she uses Trello for project management — “it gives me an overview of my day” — then she checks in with Toggl to monitor how long she spends on a project. “When I started, I wasn’t charging much money, but once I started tracking my time, that gave me the back-up to raise my prices.”

She also uses Coconut for business banking and accounting and even started her own business to build and launch two apps — Finto and Cheery Plan — for cash flow management and financial planning.

The choice is yours

With so many apps to choose from, I don’t know where to begin. Sarah Kocianski, principal research analyst at digital banking consultancy 11:FS, says: “The first thing to appreciate is just how crowded this market is getting in the UK. There are lots of very similar products out there, which makes it hard for freelancers and small businesses to work out which is best for them.”

Freelance fintech comes in different guises. There are bank accounts with invoicing services, such as Coconut and Tide. Others, like Albert, offer book-keeping linked to your main bank account, while Cool Company enrols you as an independent contractor into a PAYE umbrella service to take care of all your invoices and taxes.

I have come to realise there is a big difference between the newer freelance services and the relatively “old guard” of cloud-based accountancy, which includes services like Xero, FreeAgent and (skydiving) QuickBooks.

Despite Paul Lewis, presenter of BBC Radio 4’s Moneybox, tweeting me — “madness” — his one-word reservation about using cloud-based accountants for confidential business affairs, Ms Kocianski says they have become well-established and widely used by accountants and small businesses alike. “But they offer far too much functionality for the average sole trader and are mostly backwards-looking,” she says. “So they don’t help with forecasting — or ‘will I have enough money to pay the rent’ in real-world terms.”

To get around this, freelancers might need other software tools such as Fluidly or Float, to project their cash flow. Isn’t this all a bit convoluted?

And then there is the cost. Free Agent will “snap an expense, fire off an invoice, check your cash flow, stay on top of your tax”, but it is hardly free, charging £95 for the first year before shooting up to £190 (though it’s free for business banking customers of Royal Bank of Scotland and NatWest). Xero similarly lets you “run your business from the palm of your hand” — from £10 a month upwards. Cool Company will do everything and pay your taxes, fees and insurance — but at a cost of £6.98 for every invoice.

Yet these charges are small when compared to typical accountancy fees, which could cost the equivalent of £50-£200 per month. For the side hustler hoping to get a business idea off the ground, this is a meaningful expense.

By contrast, Coconut and Albert (aimed purely at sole traders and bought last month by Santander) are free to use, though both are developing paid versions with as-yet unknown features. Business-focused Tide is also free to use, but charges 20p for transfers to and from other accounts, plus £1 for cash withdrawals (at an ATM) or deposits at the Post Office.

“The new guard of apps are easier to use and much cheaper,” says Ms Kocianski. “Most have tiered pricing so users can get a feel for free and then pay for more services if they need them.

“Given many freelancers are already using a personal account and a self-constructed system, like Excel spreadsheets and a notebook, these bank accounts with extra capabilities are a good bet for making your admin easier.”

Sarah Ghaffari from the Institute of Chartered Accountants England and Wales agrees that these apps, connected to a business or personal account, are ideal for time-poor sole traders. “For a business that operates purely on a cash basis with no creditors or debtors to deal with, they can be helpful, especially the ones plugged into bank feeds.”

Ten lesser-known expenses freelancers may be able to claim

  1. Advertising on social media

  2. Internet business use

  3. Training courses

  4. Gifts for employees and clients

  5. Eye tests

  6. Cycling mileage at 20p a mile

  7. Home as office — automatic £4 a week

  8. Bank charges (and accountancy fees)

  9. Company set-up costs

  10. Protective clothing

Source: SJD Accountancy

    Accountancy age

    So should traditional accountants hang up their grey suits and retire to the golf course for good? Not quite.

    The majority of freelancers I spoke to use virtual services — but at the behest of their real-life accountants. Chris Pipe, founder of town planning consultancy Planning House, uses the FreeAgent app to track her expenses — “it tracks mileage, and other platforms don’t have that capability” — but admits the service also benefits her accountant.

    “We can discuss issues far better if everything is in one place, rather than looking at different spreadsheets or boxes full or receipts,” she says.

    Steve Folland, founder of the Being Freelance podcast, said: “A lot of freelancers try to do it themselves with spreadsheets, then they end up getting software. But all still have an accountant to make sure they’re doing it right.

    “Tax is going digital, so accountants really should be using online accounting portals anyway, so they have direct access to your accounts without you having to send anything over.”

    Erana Tupaea, a chiropractor who contracts for Chiro London, uses Xero with her accountant. “You can do a little bit along the way rather than everything at the end of the tax year, which I would find extremely stressful,” she says. “I go through my accounts each month, press about 10 buttons and send to my accountant — job done.”

    But not everyone is satisfied by this approach. Lauren McMenemy, a freelance writer who runs communications consultancy The Content Type, says she only uses Xero because her accountant likes it, though she appreciates its ability to handle dollar payments.

    “So much of your time is spent issuing quotes, sending and chasing invoices. My software could do these things but you need to invest time in them — it’s not very intuitive. If there was an app that I could plug in with all my invoicing details to use on my phone, I would.”

    She currently spends £120 to £150 a month on software plus accountancy fees, but admits the right services are hard to find. “You get a 30-day trial but you are not in it long enough to understand if it’s going to work for you. You need to be using it for six months to a year to understand if it gives you everything you need.”

    Hannah Martin, founder of Talented Ladies Club, a website for young mothers, dabbled with online services but went back to updating her own spreadsheets and sending them to her accountant. “Nothing beats having a human being to speak to if I have a question. I also found apps more time consuming than my own system. I keep on top of my accounts so I don’t have that dreaded day of panic once a year.”

    Tax tips for freelancers

    So how do you avoid that dreaded day of panic? Well (whisper it), it’s not actually that tortuous for sole traders. You don’t need to have a limited company or a business bank account to file your own tax returns through self-assessment. Not being VAT registered — the current threshold is a turnover of £85,000 — also keeps things simple.

    The aspect of self-assessment that many people rely on accountants to tell them about is the tax-deductible expenses you can claim. These depend on the sector you work in, but range from the cost of eye tests to uniforms and protective clothing (depending on your line of work, this could also apply to erotic outfits I was told the other day by a contact with a particularly eye-popping side career.)

    There is a common framework for what you can claim, most notably cars and travel, working from home, phone and broadband, professional fees and subscriptions, marketing and training, repairs and replacements, small consumable items and other entitlements.

    Capital allowances, mainly the annual investment allowance, can offset the full cost of essential equipment such as computers, phones and cars — though cars come under the writedown allowance where you offset a proportion of the cost each year. The rules are detailed, but not daunting.

    You must record everything you earn and claim, which means filing all your bank statements, invoices and receipts. Sort them into each category, and at the end of the tax year add them up, complete the form, press the button and get an instant calculation as to your tax payable — one instalment by January 31, the next by the following July 31 — which includes your national insurance liability and student loan repayment (if there is any).

    The rules on working from home and car expenses are clearly set out on the HMRC website, with worked examples. For instance, you might claim 50 per cent of car costs because the other 50 per cent was personal use, or claim 15 per cent of home costs because that equates to one room in a flat for half the time. You can choose actual or simplified expenses, and the HMRC calculator will actually tell you which option will save you the most.

    There are guides which take you through the self-assessment form section by section, with much of it (in my case, most of it) non-applicable unless you are also a landlord, have investments held outside an Isa, claim tax credits or other complications.

    There is even a no-frills HMRC app, where you can monitor your tax liability and payments (but nothing more). And you can go online to find tax advice about the specific sector you work in. For example, the Musicians Union reminds members they can claim for stage clothes and concert tickets.

    If you’re not ready for the full accountancy shebang, a good compromise might be apps such as GoSimple Tax and 1TAP, which can help you file receipts from £15 a year (bye-bye, tatty shoeboxes).

    Good company

    If your business starts becoming more lucrative (and complicated) it may be time to get some outside help set up your own limited company. Does that mean booking an appointment with that firm your dad’s mate once used?

    The conventional wisdom — “you’ve got to know someone” — that has brought accountants generations of business could be on the way out as times change. James Foster, commercial manager at SJD Accountancy, says: “We offer face-to-face meetings but they are rarely chosen. We do digital meetings over Skype and screen sharing. This can link to portals where the client and the accountant can log in at the same time.”

    Many accountancy firms try to court young gig workers by offering fixed monthly fees in the style of Netflix, rather than a one-off annual charge, with differently priced packages offered from the outset.

    But Mr Foster urges caution. “Find out if what they are offering is a genuinely fixed package or whether there are hidden costs. Brands may not look expensive on a monthly fee but a lot of things won’t be included.”

    What’s my verdict? It’s eye-opening how much sole traders can do for themselves with the free HMRC help available. But there are some genuinely innovative apps out there that could be an admin lifesaver. It’s then a big step-up to accountancy systems that require more time, bookkeeping knowledge and (ultimately) a real accountant, though all these will be unavoidable once your finances become more complex. But there is no one killer app that brings everything together — yet.

    Mr Folland says: “The next move is for a company to combine the entire freelance toolkit in one place: project management, time management, communications, accounting and banking. But it’s the app that can guarantee an invoice will actually get paid on time that will win the day.”

    Now, wouldn’t that be something.

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