Momentum Bookkeeping Services

6 Common Bookkeeping Mistakes Made by Freelancers

Being a freelancer in the UK offers a fantastic sense of freedom and control.

You get to choose your projects, set your schedule, and be your own boss. But with that freedom comes responsibility, especially when it comes to bookkeeping for freelancers. One of the biggest challenges freelancers face is keeping their books in order.

Not separating business and personal accounts

This is a recipe for disaster come tax season. It’s tempting to use one account for everything, but mixing business and personal transactions makes it difficult to track income, expenses, and identify tax deductions. Open a dedicated business bank account. This will make bookkeeping a breeze and help you maintain clear financial records.

Keeping poor records of income and expenses

Receipts shoved in a drawer, invoices lost in your email – sound familiar? Without proper records, you’ll miss out on claiming legitimate tax deductions and struggle to track your business profitability. Embrace digital solutions! Whether that means using cloud-based accounting software or a simple spreadsheet to record all income and expenses as they happen.

Not keeping track of mileage

For many freelancers, travel is an essential part of the job. Whether it’s meeting clients, attending industry events, or grabbing supplies, mileage adds up. The good news is, you can claim mileage deductions on your tax return. Invest in a mileage tracking app or keep a detailed log of your business-related travel. Note down the date, destination, purpose of the trip, and mileage.

Not setting aside money for taxes

Taxes are a fact of life, but when it comes to bookkeeping for freelancers, they often underestimate how much they owe. Come tax time, a hefty bill can be a real shock. Estimating your tax liability and setting aside a portion of your income each month to cover it, will help you avoid a scramble at year-end and potential penalties.

Viewing bookkeeping as a necessary evil

Locked away in all those receipts and statements is information. Information that, properly presented and used, could help you make decisions critical to your business. By taking advantage of the information in your financial documents, you can make informed decisions that can help you grown or safeguard your business.

Not saving for retirement

As a freelancer, you don’t have the luxury of an employer contributing to your pension. However, putting off retirement planning can have serious consequences down the line. Start early and explore various retirement saving options available, such as a Self-Invested Personal Pension (SIPP). Contribute what you can afford consistently, and consider increasing contributions as your income grows.

Get in touch…

Navigating freelance finances demands vigilance and foresight. When it comes to bookkeeping for freelancers, avoiding these common pitfalls and implementing practical solutions, will allow you to create a financial management strategy that doesn’t feel overwhelming. If you are struggling with managing your business’ finances on your own, we can help. Remember, a small investment in your bookkeeping now can save you time, money, and stress in the long run.