Freelancers/Self-Employed: any advice on managing money on monthly basis?

[DaphneHarvey]

My DH is self-employed and have left him to it for the past year or two. Net result = finances in horrible muddle.

So am going to have some input.

He has a business account and we have a separate joint account with a different bank. All of our standing orders and monthly cash withdrawals etc come out of the joint account.

Strikes me that it would be sensible to pay a fixed amount, every month and on the same day, out of the business account and into the joint account. Like a salary.

So how do we decide what is the right amount? Add up standing orders then more to live on? And how much?

How much to save for tax?

TIA

DH is also self employed. We put 40% of all he earns (and also all the VAT collected) into a separate account for the tax man. He pays himself a monthly salary out of the remainder.

I have a separate business account, out of which I pay both my personal account and my joint one with my partner, which pays for our joint/household outgoings. I agree about paying a regular sum into your joint account, if that's how you operate (personally I need a separate account, no way would I pool resources with Mr Inferior's financial mis-management, I quite like having things like a pension and some savings).

Would also recommend getting a seriously good accountant.

I was freelance for 10 years. My DH has been self employed on and off for a few years. Thankfully we are now both PAYE as we got into a horrible situation finiancially. (Basically didn't earn enough!)

However, if your DH has a a fairly heatlthy income in relation to your household expenses, and can afford to put the required amount into your Joint account every month, then I would really urge you to do this.

Just work out what your household expenses are (ie everything that's not business related) and put that in the joint account.

Depending on what he does, your DH should be able to claim against his tax for a lot of expenses like your car, petrol and the like. So it makes sense to keep these coming out of the business account - it will be easier at the end of the day when he/his adviser does his accounts.

I also had things like pension payments, NI payments etc, phone bill (as I used the phoen for work) broadband, coming out of my business account. I also took childcare costs out of the business account - although i couldn't claim for them against tax they were a business expense as the only reason I needed childcare was because I was working!

Jan's point about putting 40% (or 25% depending on whether his profit will put him in to the high tax rate) in a separate account is a good one. His tax burden won't be as high as it would have been if he was PAYE so he should see a lump left at the end of the year when he's paid his tax - especially if you put it in an interest-earning account.

Just try and keep business expenses and personal spending separate and make sure enough goes into the j/a to pay the household bills. A regular standing order is a great idea.

Yes you need to look at paying a regular amounts of money into your personal or joint account every month, just like getting a salary.

I would also consider putting aside 35 - 40% of all income for tax and NI payments. I actually transfer mine into premiun bonds, cos it wins the occasional £50 (tax free) between being earned and paid to the revenue at the end of January.

If your dh is poor at finances, then he needs to contact an accountant or a good bookkeeper to make sure he is claiming all the correct business expenses against tax. No point in paying more tax than you should, nor mistakenly claiming too much, only to find you have to pay a chunk of back tax if the revenue do an inspection.

Sorry about the crap typos - and I write for a living! Yes MI's point about accountants is very good. It cost me about £300/yr for my accountant to do my accounts and my tax return and it was money well spent (I wasn't a Ltd. co or VAT registered though - that would cost you more). Choose one that specialises in small businesses and it's even better. I'm PAYE now and recently did my own tax return online for my last year of self-employment - I wish I'd paid my accontant to do it - it was so stressful!

I am a ltd company and the cost is horrendous but oh my god it is worth it.

We're a ltd company too, I don't think the costs are sooo terrible.
Mind you, I do our regular accounts (business studies finance graduate with years of experience of implementing ccomputerised accounting systems), so only pay accountants for the year-end stuff.

Where do your costs arise MI?

Thanks for your advice everyone.

Another question if you don't mind: DH works pretty much full time, I work 2 days a week. As far as its possible to tell, I think we are under the threshold of earnings for Working Families Tax Credit - what is that amount currently?

oh and

What is the difference between Working Families Tax Credit and Child Tax Credit?

If I find we are entitled to one of these, can we claim it retrospectively?

I pay a huuuuuuuuuuuuuuuge accountant bill to do everything, but everything. My talents, such as they are, do not cover accountancy.

www.entitledto.co.uk/ will tell you what you are entitled to.

How and what you pay yourself depends whether your DH is self employed/schedule D or a limited company.

When I was self employed, I had a strict formula for what I could pay myself out of every payment I received from a customer. I knew roughly what my business running costs were as a %age of my total business income so I left this % of every payment in the business account. Of the rest I put a %age aside for the taxman, then what was left over was for me.

Because my income wasn't regular and I don't trust myself the left-over-for-me £ went into yet another savings account and I transferred a regular sum from that to my personal account every month.

If you can look back over the past year and work out the total business running costs as a % of the total business income you will know what you must NOT take out. then of the rest you just need to make sure you put enough aside for the taxman, and the rest is yours all yours.

So ltd company makes very little difference to your costs then, you would need someone to do all the accounts regardless?

You could find a freelance bookkeeper to do the regular stuff, they'll generally charge a lwer hourly rate than a firm of accountants.

Just done my budget (fanfare! first one for a very long time).

Standing orders come to:£1855
Other fixed spending (petrol and childcare): £150
Food/wine/household etc: going to allow £540

Child Benefit pays for kids activities like swimming and ballet.

Nothing at all in the budget for clothes but I think we don't need to buy any for the next couple of months.

So how much more do we need to pay in for the rest of our living expenses? You know the money you get out of the cash machine which all just disappears somewhere.

Whats a realistic amount for two reasonably responsible adults? Any suggestions gratefully received.

It really depends on you - why don't you look back at your bank statements for the past few months and see how much you actually took out of the hole in the wall, and use that as a guide if it's fairly realistic?

What two reasonably responsible adults spend really depends on how you define reasonable responsibility! Different people will describe it differently.