The Creatives’ Guide to Building Financial Security: Accounting for Freelancers

What is accounting for freelancers? At Green & Peter, we work with many freelancers in creative industries who tell us their monthly income feels unpredictable. Sound familiar? Most creative professionals struggle to manage fluctuating earnings whilst building their business.

Getting your accounts right means more than just tracking income and expenses. Our experience shows that successful freelancers typically set aside 25-30% of their earnings for tax payments. They also maintain a safety net of three to six months’ living costs.

Many of our freelance clients find financial management daunting without the structure of regular employment. No paid holidays, no workplace pension, no sick pay – these gaps need careful planning to manage effectively.

Whether you’ve been freelancing for years or just started your creative business, proper accounting systems make the difference between stress and success. Green & Peter has helped creative professionals manage their finances for over 30 years. We understand the unique challenges you face.

Let us show you practical steps to organise your money, handle your tax obligations, and build a thriving creative business. 

Understanding Your Accounting Method

Most creatives ask us about choosing between cash basis and accrual accounting. From April 2024, HMRC makes cash basis accounting the default method for freelancers in the UK.

What’s the difference between cash and accrual accounting?

Cash basis accounting works like your bank statement – you record money when it actually moves in or out of your account. For example, if you invoice a client in March but receive payment in April, that income counts for April. This straightforward method suits freelancers earning below £150,000 annually.

Let’s look at the key differences:

• • Cash basis shows your actual available funds, like checking your bank balance

• • Accrual accounting records work when you do it, not when you’re paid

• • Cash basis makes tax simpler – you only pay tax on money you’ve received

• • Accrual gives a fuller picture of how your business performs

Accrual accounting records income and expenses when you earn or incur them. Once your turnover reaches £300,000, HMRC requires you to use this method.

Should you switch accounting methods?

Your choice depends on how your business grows. Remember, from 6 April 2024, you’ll need to tell HMRC if you don’t want cash basis accounting.

Switching between methods needs careful planning. Moving from accrual to cash basis? Make sure your income doesn’t get taxed twice. Any remaining capital allowances count as cash purchases when you switch.

Think about accrual accounting if you:

• • Want a business loan – banks usually ask for accrual-based accounts

• • Keep lots of stock or run complex operations

• • Need to offset losses against other income

Cash basis might not work if you claim over £500 in interest or bank charges as expenses. Getting paid in advance for projects? Accrual accounting often shows your business performance more accurately.

Getting Your Financial Records Right

Many of our artist clients tell us they struggle with paperwork. We understand – you’d rather be creating than sorting receipts! But HMRC needs you to keep these records for at least five years after the 31 January online submission deadline.

What should be on your invoices?

Your invoices need more than just a list of services. HMRC wants to see your business name, contact details, and unique invoice numbers for tracking. Don’t forget project timelines, payment terms, and how clients can pay you. This helps avoid payment disputes later – something we see too often in creative industries.

Looking after your receipts

Like any other sole trader or small business, you’ll need proper receipt records for tax deductions and HMRC checks. Good news – digital copies work just as well as paper ones, as long as they show all the original information. Set up a simple system that works for you, whether it’s special software or well-organised digital folders.

Managing bank statements

Check your bank statements regularly – it’s not just about spotting problems. Match every transaction against your records to catch any issues early. Your statements help you:

• • Prove where money came from

• • Track what you’ve spent

• • Watch your cash flow

• • Back up your tax return

Keeping track of expenses

Detailed expense reports help you claim everything you’re entitled to at tax time. Note down the date, who you paid, what it was for, how much it cost, and keep those receipts. Group similar expenses together – it makes tax time much easier.

Try using accounting software that lets you:

• • Snap pictures of receipts

• • Sort expenses automatically

• • Create clear reports

• • Connect to your business account

Did you know 74% of freelancers face late payments? Good record-keeping helps you stay on top of your cash flow. 

Managing Your Tax and Savings

We often see creative professionals struggle with tax planning. Setting aside 25-30% of your income for tax helps avoid nasty surprises.

Key tax dates for your diary

Just started freelancing? Register for Self Assessment with HMRC by 5 October after your first tax year ends. The tax year runs from 6 April to 5 April.

Here’s when you need to pay:

• • 31 January: Last year’s tax bill plus first payment on account

• • 31 July: Second payment on account

• • 31 October: Paper tax return deadline

• • 31 January: Online tax return deadline

Many of our artist clients ask about payments on account. These split your tax into two payments, each 50% of last year’s bill. Whilst it might seem complicated at first, it’s better than one big annual payment.

Don’t fancy large bi-annual payments? HMRC offers a Budget Payment plan – set up weekly or monthly Direct Debits for your next tax bill. We’ve found this helps many freelancers manage their cash flow better.

First-year freelancing? Be ready for a bigger January payment. You’ll pay your full tax bill plus 50% towards next year. We often help new freelancers plan for this double payment.

If your income drops significantly, you can ask HMRC to reduce your payments on account. But be careful – they’ll charge interest if you reduce them too much.

Remember, if you earn more than £317.66 from self-employment, you must file a tax return.

Here’s what we tell our creative clients about tax management:

• • Review your finances monthly

• • Keep tax money separate

• • Watch payment deadlines

• • Consider automatic savings

Missing deadlines means penalties. Unlike employment where tax comes out of your salary, HMRC expects you to manage your own tax payments throughout the year.

Making Your Accounting Work For You

Many of our artist clients tell us they spend too much time on paperwork instead of creating. Good news – modern accounting systems can cut manual data entry errors by 80%.

Taking care of regular tasks

Like any other sole trader or small business, you’ll have regular accounting jobs to handle. Manual bookkeeping often leads to delays, but good software can manage your invoices and sort expenses automatically.

Here’s what proper automation does for you:

• • Saves 50-60 hours each month on paperwork

• • Gets your numbers right first time

• • Shows how your business is doing right now

• • Works with your existing accounting tools

We’ve seen how automated systems help creative professionals work across different time zones. Your accounts keep working even when you’re sleeping.

Getting paid on time

Chasing payments can be awkward. That’s why we love seeing clients use smart reminder systems – they help get 80% of invoices paid within a day.

Try this approach for better payment collection:

1. 1. Write different reminders for different situations

1. 1. Let the system send reminders at the right time

1. 1. Know instantly when you’re paid

1. 1. Use email and text reminders to reach clients

You can adjust how often you remind each client. Some need gentle nudges, others need firmer reminders – you know your clients best.

Modern systems let you choose when to send reminders – before the due date, on the day, or up to a week after. If payment dates shift or clients pay early, the system updates itself.

For the best results, link your payment system to your accounting software. When clients pay, your books update automatically. Regular clients? Set up recurring invoices to bill them without lifting a finger.

The time you save on paperwork means more time for your creative work. 

Growing Your Creative Business

At Green & Peter, we’ve seen many freelancers reach that crucial growth point. Most small businesses face cash flow challenges in their early years, and creative professionals are no exception.

Moving beyond solo work

A client who is a fine artist came to us struggling with too many commissions. Growing meant more expenses, but scaling smartly meant better efficiency. We helped her build a team of trusted collaborators, which let her:

• • Take on management fees while passing work to other artists

• • Accept larger exhibition projects through teamwork

• • Keep her signature style while delivering more work

Our experience shows that streamlined processes save creative professionals 50-60 hours monthly on admin tasks. But getting there needs careful planning.

Many of our artist clients tell us they struggle to set clear money goals. We help them work out exactly how many projects they need to meet their targets. Just as importantly, we help them avoid taking on too much – a common problem we see in growing creative businesses.

Time to call in the experts?

Like any other sole trader or small business, knowing when to get help matters. Did you know 74% of freelancers face late payments? Most small businesses struggle with cash flow.

You might need an accountant if you’re:

1. 1. Spending more time on books than billable work

1. 1. Worried about tax rules

1. 1. Not sure about tax claims

1. 1. Planning to expand

1. 1. Making big money decisions

Doing it yourself might seem cheaper, but we often find it costs more in lost work time. Professional accountants help with:

• • IR35 rules

• • VAT choices

• • Tax-smart business structure

• • Future planning

Remember, if you earn over £85,000 yearly, you must register for VAT. But sometimes registering earlier makes sense – we can help you decide.

As you grow, you’ll face new challenges with:

• • Staff payments

• • Employee taxes

• • Property matters

• • Bill tracking

Making Your Creative Business Work

We’ve helped countless creative professionals get their finances right. Good accounting starts with choosing between cash and accrual methods, but it’s the consistent record-keeping that protects your business when HMRC comes calling.

Many of our artist clients tell us they sleep better knowing their tax is planned and saved for. Smart systems save time and catch mistakes before they become problems. As your creative work grows, you’ll need more support to handle the extra complexity.

Like any other sole trader or small business, you need solid foundations to build on. That’s where Green & Peter comes in. We’ve been helping individuals and businesses with tax queries, bookkeeping and annual accounts for over 30 years.

If tax codes send your brain into a spin, or you’re spending more time on spreadsheets than creating, get in touch with us today!