When most of us start submitting articles to as many outlets as we can find to commission them, you probably don’t see yourself as a ‘business’. You’re just grafting, trying to earn a few bob and hoping each story won’t be your last.
Financial Journalist Sinead Ryan
Many young freelancers will be holding down other work, maybe not journalistic, just to make ends meet. Others will be providing services for free, interning in the hopes of being held on.
But you are a business, at least in the eyes of the Revenue Commissioners. And as such, you need to structure your working week around how it will be viewed at the end of the year. Making time to do your admin, paperwork and filing might seem boring, but it is absolutely vital.
Setting up simple, but good habits means that your accounts will be in order when the time comes to make a tax return, which you are legally obliged to do, irrespective of whether you actually earn enough to pay tax, or not.
I have found over 20 years as a freelancer that simple structures work the best, so here are my recommendations:
Keep a binder for each year. In separate plastic inserts, I put samples of my work (you may need to provide this in order to get an NUJ card or accreditations for certain pressers).
It also holds every invoice I issue, every receipt/expense I acquire in the course of my work, all preferably by month, stapled together, or by item (e.g. ‘office equipment’) so that you are making your accounting much simpler at year end.
Records should be kept for a minimum of 6 years (this is a Revenue requirement), but I know many journalists who have them going much further back. You can always keep them with your diary and reporters’ notebooks so that everything is stored together.
Separately, it’s a great idea to have a running spreadsheet listing the items you hope to offset against your tax, by source, by month, and the amount you spent.
This keeps everything in order and it only takes an hour every month to sort it all out and input.
On the same spreadsheet, list all your clients, and invoices issued, by month. If you are registered for VAT (see below), this should be clearly recorded as net and gross income, and vat charged.
Dealing with Revenue
Revenue doesn’t care where your income comes from. It doesn’t care that you have multiple clients, social welfare income supports, bonuses, dividends, rental income etc.
It does expect you to add it all up and pay the appropriate tax each year.
It is up to self employed people to declare what tax they owe and pay it by 31 October for the previous year. If you do not do this properly, you could be penalised. It is not up to Revenue to calculate your tax, or tell you what you owe. They will, however, tell you if they think you’re wrong!
There are two types of income tax due: preliminary tax and balance tax. Then there’s PRSI (social insurance), Universal Social Charge (USC) at a variety of amounts depending on earnings.
For the tax year 1 Jan – 31 December 2020, your balance tax is due by 31 October 2021.
Preliminary Tax based on what you THINK you will earn in a tax year. This is due 31 October in the tax year itself. There are very strict rules about how you calculate this, and Revenue takes a dim view of guesstimates. It can fine you if you under-estimate this significantly.
If you expect to earn, say €3,000 per month Jan – December 2021, your gross income is €36,000. You are expected to pay either 100pc of your 2020 tax bill, or 90pc of your expected tax on your 2021 earnings, by October.
In addition, you will also be paying the balance of your tax bill for the previous year.
Here’s a rough example based on above earnings.
On 31 October 2021 you will pay two bills:
€9,000 (or whatever) income tax based on expected 2021 earnings, PLUS
€1,000 (or whatever) income tax based on the residual earnings from 2020.
PRSI and Universal Social Charge (USC) is then added as these are, strictly speaking, levies rather than taxes.
When completing your tax return (Form 11), you can include all your off-sets, which you’ve recorded and receipted and any other things you get tax relief on, e.g. pension contributions.
Last year over €400 million was left unclaimed by people who either didn’t know, or couldn’t be bothered finding out what they’re entitled to. Revenue want to return this money, but you must ask for it.
An accountant is a great idea if you feel all this is beyond you. In my experience, a good one pays for themselves, and will cost you in the region of €400 – €700 for a basic tax return. It is money well spent, and their fee is also a deductible! Remember the more you ask your accountant to do for you, the more s/he will have to charge.
While the completion of an annual tax return may be too much work, and you’ll never be certain you’re claiming everything to which you’re entitled (or, conversely, paying the right tax), completing VAT returns every four months or so, is very simple.
Most freelance journalists, unfortunately, have little to offset – stationery, printer ink etc. But they must charge VAT at the service rate (21pc, soon to revert to 23pc). This creates a significant bill at each period, but completing the return on ros.ie is extremely simple, and it saves you a lot of time handling your accountant.
On the upside, Revenue officers are knowledgeable, friendly and willing to talk to you about tax matters, in my experience. Rather than avoid them (and you won’t), why not give them a call and ask them what you should do. There are tutorials and step guides on revenue.ie to becoming a sole trader (the proper term for a self employed freelance).
VAT
If you believe you might earn more than €37,500 in income in any tax year, you must register for value added tax known as VAT.
VAT is payable on the provision of services at 23pc (reduced to 21pc until March 2021). Registering for VAT means that every invoice you issue, must have VAT added to the total, and it is your duty to return this to Revenue, usually 4 or 6 times a year.
The most important thing a freelancer must realise is that this isn’t your money. You are merely a tax agent for revenue, whose job it is to collect this tax (from your client) and pass it along to revenue.
It is imperative to have a separate VAT account so that every time you are paid you simply transfer the VAT element into this account (a deposit account is fine) and remit it to Revenue when required. It is considered fraud if you do not and the penalties are severe, not to mention the possibility of appearing (perhaps in your own newspaper) on the ‘name and shame’ list of defaulters. As the adage goes, the journalist should never become the story!
The advantage of being VAT registered is that you can now claim back the VAT you pay on expenses, e.g. stationery, furniture, services and equipment and deduct it from your return. VAT returns are extremely simple to do, and you’ll reduce your accountant’s bill if you simply file them yourself – usually on the 15th of the month due.
Pensions
Being self employed, you have no employer contributing to your pension. You must fund it yourself. If you have enough PRSI contributions in your working life (around 520, or 10 years’ worth) you qualify for a State contributory pension. This is payable, currently from age 66 (age 68 from 2028). It currently amounts to €12,912 p.a.
There is much discussion over whether it will be payable at all in its current format, or value. There are five taxpayers supporting each Irish pensioner today. By 2045 there will only be two. Over 70 new pensioners are added to the country every day. 80 is the new 70.
Only around one in three self-employed workers have a private pension. It is the single most important investment you can make in your future, and if that’s not enough incentive, it’s the single best way to cut your tax bill in October.
Most self-employed people pay into their pension just before the tax deadline. This is because it is counted against the previous tax year’s bill. So, by contributing, say, €240 a month it only costs you €144 as a 40pc taxpayer. A PRSA (personal retirement savings account) is the easiest type, and any Financial Broker will advise.
Helpful Links
Two Revenue sites:
https://www.revenue.ie/en/self-assessment-and-self-employment/guide-to-self-assessment/index.aspx
https://www.revenue.ie/en/self-assessment-and-self-employment/filing-your-tax-return/index.aspx
Local Enterprise Offices also run ‘start your own business’ online workshops for €80. Here’s one:
https://www.localenterprise.ie/DublinCity/Training-Events/Online-Bookings