starting in freelancing

You’re reaching adulthood and entering the workforce, but nobody has really explained to you much about contracts or taxes. Here’s where I had a big wake up call to the adult world. As an adult, YOU are responsible for things you know, or might not know. Sham contracting is one of them. 

What It Is

Sham contracting is when an employer hires you and makes you believe you are their employee, but tries to dodge their tax, super, and insurance liabilities by getting you to sign up for an ABN. Recently, the government cracked down on this by still considering some ABN holders as employees and even created a tool to help you figure it out.

The back story

Back in 2011, I was finishing up with my university studies and found work with a small company. They asked me to register for an ABN through a website so they could pay me. It was so easy, I did it in a few hours and received my ABN through the mail within days. I didn’t know what it really meant, I just wanted to get paid so I agreed with everything. 

The repercussions

Unfortunately, an ABN is an Australian Business number which is different from your TFN (Tax File Number). As an ABN holder, you are seen as your own business and this means you would have to operate as your own, including managing your super and taxes. This is part of becoming a freelancer, although I didn’t know it at the time, I was already screwing up my taxes just to get paid. I ended up owing the ATO some tax bills and had to pay them off slowly.

So you studied for a creative role and you weren’t really interested in boring subjects like Math, but remember what I said about you being responsible for your own taxes? You’ll have to work out what kind of tax deductions you’re going to be claiming for, because some accountants won’t tell you unless you ask. The problem is, some people don’t even know what they’re supposed to ask. Unlike an employee, you won’t get that familiar payslip that tells you how much tax the employer already paid the tax office. You’ll have to work it out yourself and pay it yourself, so make sure you’re aware of deductions that you can claim.

What it is

It’s called tax deductions because they are items that deduct from what you’re owing from the government. They reduce your debt. A lot of it is explained at the ATO website so most accountants won’t bother explaining it to you unless you really ask. But be wary, the ATO website can be confusing to navigate, you might need a whole day or week just to really take everything in.

The back story

Since I had gotten the ABN haphazardly, I didn’t even know how tax deductions worked. This meant I never paid any attention to my record keeping.

The repercussions

Everytime I filed my tax. I would owe the government money because I never had anything to deduct.

This part is really important even though it seems tedious. Bookkeeping will save you heaps of money over the years if you do it right. This means keeping all receipts and finding a suitable program so you can easily see how much money is coming in or out. An excel sheet might work but if you hate numbers, you would take a long time setting up something that works efficiently.

What it is

By law, you are legally meant to keep records of all your business activities for up to 7 years. That’s right. Every single purchase or sale you make will need to be recorded. Some people do this the old-fashioned way with paper, but you can make this more efficient using today’s technology. Why? Because to claim your tax deductions, you’ll need to group your expenses to different types so you can claim for them.

For example: You refuel your car at many different petrol companies, if you add all those expenses together and call them “Fuel Expenses”, you can claim for that amount you spent on fuel. Not the entire amount of course, you’ll have to keep a record of your business and personal trips so that you can claim for the business.

I won’t go in depth with this, but if you’re starting out, make sure to research and find a software that can invoice and import your bank feed. Try and find one that is free! 

The back story

My mum was an accountant so I knew there had to be some way they automate invoicing and bookkeeping. From the very start, I used WaveApps because I didn’t think it was time-efficient to fiddle with invoices in word or excel.  It was a bonus that they allowed bank statements to be imported.  

The repercussions

Because I spent less time working out my books, I had more time to work with clients. You know, the part that actually gets your income. Bookkeeping is important for your taxes, but remember, it doesn’t make you money. Your business needs to make some sales so that you have something to keep doing your bookkeeping!

Who needs insurance? This seems like a lot of money to spend at the start of a business. Honestly, it is a lot of money, but if you want to keep on top then you should probably get insurance. Anyone can get an ABN and call themselves a freelancer, but not many people get their business insurance. There are so many different types out there, so make sure to start with a basic insurance.

What it is

Insurance helps protects you from any liabilities that may arise during business. This includes a situation if anyone tries to sue you, or even a time when you’re out of work. Having insurance also projects a positive image to your clients that you are a professional at your work.

The back story

For the first few years, I didn’t have insurance because I didn’t completely understand freelancing. I had my ABN but only worked on it on the side. After going full-time with freelance, I felt that some clients were extremely difficult and my work affects another business’ brand image. I felt I was vulnerable without insurance. When I dove into full-time freelancing, I went and looked for public liability and professional indemnity insurance. These were the base insurances you would need as a freelance designer.

The repercussions

I felt safer to work with difficult clients and others looked at my business more professionally. I haven’t had the need to claim for anything yet, so hopefully it stays this way.