How to write invoices

[rostraqueen]

I'm sorry I seemed to have sparked an argument. I know that they have to have the information for tax inspections and the like. I am going to be studying a related subject and I guess I kind of thought of this as more of a paid work experience. Will be more careful with employment terms and finance-related issues from now on.

[kerry davies]

Please don't apologise and it isn't an argument. These subjects need to be brought up repeatedly as every year educational establishments churn out so-called "freelancers" and leave them half-prepared for the reality of self-employment. These responses help others and are not simply aimed at the OP (I hope!) and when posters cry "NO" it is not intended personally but as a general statement (again, I hope!).

 

Check out http://www.businesslink.gov.uk/bdotg/action/home for further information on setting up as an SME which is effectively what a self-employed contractor will be. They have step-by-step guides and links to all the relevant government websites plus a huge amount of advice and contact details such as Local Authorities etc.

 

The case of work experience payments is complicated as trainees are not supposed to gain reward for "work" or carry out work that would normally be paid for if done by another person. In the case you outline I think that HMRC would define the role as employment and subject to normal taxation. http://www.hmrc.gov.uk/manuals/senew/SE10500.htm Just because it is labelled work experience doesn't mean it is non-taxable. It's about the individual and what they undertake that counts.

 

This whole area has been a minefield lately with an ongoing furore about internships and you just happen to have posted into a hot topic.

[gareth]

What Kerry said.

 

This is something that everybody should know if they're working as a self-employed contractor, but a worryingly large number of people actually *do* seem to know. Seeing the number of students who work part-time (or as a casual) for a couple of companies and class themselves as "freelance", and reading some of the drivel that's posted about this subject, it's becoming clear that most (but not all) colleges and universities teaching technical theatre courses don't fully prepare their students for the financial realities of life as a self-employed contractor in the entertainment business.

 

Many people on this site are in a position to post good, sound advice based on personal experience and advice from financial professionals. Personally I spent many years both as self-employed, and working under the umberella of my own limited company - I learnt a lot from listening to what my accountant told me during that time, but there's still a lot of the more detailed stuff that's a bit of a 'black hole' to me (that's what I paid my accountant for!!).

 

I've said this before, but it bears repeating - a good accountant, who has a grasp of how our business works and can navigate around the potential pitfalls and exploit the loopholes, is worth their weight in gold if you're self-employed.

[rostraqueen]

The only thing is, how can I afford to have an accountant when my paid work is so occasional it doesn't even cover my basic living expenses?

 

Another question - if I do work voluntarily (to build on my experience) that other people would get paid for, should I be getting paid anyway? And am I then in any position to say I need to be paid for it?

[gareth]

The question of voluntary work has been the subject of some very heated discussion recently on this forum. The long and short of it is that if you're doing some work voluntarily that would otherwise be done by someone who was getting paid for it, then a) you're taking paid work away from someone who probably relies on that kind of work to earn a living for themselves and their family, and b) the employer is breaking the law regarding National Minimum Wage.

[paulears]

The Revenue are quite happy with the concept of 'Hobby Invoicing' - they are also quite aware that people hire out their kit from time to time, and this isn't a business, as such. It muddies the water when the person sets up a web site XYZ lighting, and fills it with psuedo business content 'bigging up' - this is when things could go wrong. The important thing is that for many younger people, they won't be paying tax anyway. If they are a tax payer, then if you have records that show you paid £1000 for a bit of kit, and got £100 for a hire - you still won't pay tax on that £100.

 

Gareth mentioned people who come through college without covering this important factor. I agree. Each year in panto we have dancers usually just graduating from dance school. Very often this is their first professional contract, and I hand out a pay slip and wait for them to say "What is NI?" "Why have they deducted tax - I'm self-employed?" Did you give the office your UTR? "What's that". Nowadays, because the employer NI is so high, employers won't take chances on their people's status. If they say they are self-employed/freelance, and the revenue disagree, then they will have to pay what you didn't! - and as by then you're on another job, I can't really blame them for not taking the chance. Proper self-employed people simply invoice. This too can work against you. I've already invoiced this years panto, so in a few days, I have to pay the VAT on an invoice that won't be paid until November-January! This is one of the systems the client has for people like me. Accept the contract, submit the invoice, then wait. This year it will be worse, because of the VAT change half-way through - so it won't quite balance out.

 

Tax at the entry level isn't complicated, but I don't understand how people don't even know the basics.

 

NI is worse, with Class 2 and 4 vs Class 1 - and nobody really understands how these stack up and impact on each other - over or mistaken payment is also a bit random. Some people get told that refunds can be obtained, others get advised that they can't are just 'in the bank' - I've seen both sets of advice given by the powers that be.

[cedd]

The Revenue are quite happy with the concept of 'Hobby Invoicing' - they are also quite aware that people hire out their kit from time to time, and this isn't a business, as such. It muddies the water when the person sets up a web site XYZ lighting, and fills it with psuedo business content 'bigging up' - this is when things could go wrong. The important thing is that for many younger people, they won't be paying tax anyway. If they are a tax payer, then if you have records that show you paid £1000 for a bit of kit, and got £100 for a hire - you still won't pay tax on that £100.

That's exactly how I play things. I wrote to the Inland Revenue to declare the "income" from my hobby. They wrote back confirming that my hobby would not be liable for tax, and sent a few leaflets on the matter - it seems it applies to quite a few people. As an example my parents' hobby (and I suppose mine - very little involvement now though) is miniature ride-on railways. They have a portable length of track and occasionally go to fair's and fete's with the railway. They have insurance and have a fair few costs to cover. It's not specific to the theatre world and the Inland Revenue are reasonably well geared up for it.

 

I do however keep copies of all invoices, I record all income and expenditure and keep all receipts. It'd be a wise thing to do for when the line is crossed into "professional" work - at some point you're going to have to decide the line has been crossed and gear up for tax. That line is unfortunately quite muddy as Paul said.

[Brian]

They wrote back confirming that my hobby would not be liable for tax, and sent a few leaflets on the matter - it seems it applies to quite a few people.

Do you have to hand the leaflets so that you can post the reference code on them? This is likely to be of interest to many BR members.

[cedd]

They're in a nice organised folder somewhere! I've just moved house, so they could be anywhere at the minute. Will report back when I find them!

[GRisdale]

Coming back to the more mundane side of invoice writing, not many people realise that there are a lot of, easily customisable, templates built in to MS Word and iWork Pages, including invoices. A casual glance at Word 2007 shows around 100 invoice templates, with something to suit all tastes...

 

Gareth.

[Jivemaster]

Coming back to status.

While self employed contractor sounds nice, employee (PAYE) can be nicer in the early days as the employer is responsible for the TAX and NI and your training, supervision, PPE etc. Some of your skills may be below "competent professional" level at the moment and if anything goes pear shaped on you as an employee they insure you work, as a self employed contractor then you are liable and that's what you pay insurance for.

 

The transition from employee (PAYE) to self employed contractor should occur when you have a full professional skill set, and a full professional business system -paperwork insurance etc. Probably after you finish Uni. Even so, casual PAYE employment

may well suit you if you are intending (or it just happens!) that you get one substantial work provider, but don't get fixed contract hours.

Far easier to submit a time sheet -hours x rate = pay, Give then your bank details for direct payment

[rostraqueen]

You're right, Jivemaster, I suppose "self-employed" does sound more appealing and 'professional' to me at this point in life (and hopefully career!) but I agree it may be easier to get into the swing of things and build my name up a bit as an employee before becoming properly self-employed. That way I can be earning and learning about the employment and tax systems at the same time.

 

I will make a point of, when I start my course, asking about the whole payment system and make sure my tutors know it's important to me to learn about it. Whether anyone else decides to listen is a different story, but you have all certainly opened up my eyes as to how much I DONT know about how work actually.. well, works!

[Jivemaster]

Employed (PAYE deducted) means that the employer is responsible for you and the work that you do, also they are responsible for their payroll and accounting compliance (for which they will likely engage a payroll person and an accountant (or sub both roles out!)). Also wages are payable on time, and there are some priorities in the case of insovency of the employer

 

A freelance self employed contractor has to have a full set of technical skills and accept responsibility for all work that they do and supervise (get insurance!) ALSO they have to have the admin skills to do book keeping and the income to pay professional advisors (accountant solicitor etc) Remuneration for contracting isn't due til you sent the invoice (that takes time usually!) then 3 - 6 months with all the reminders and phone calls isn't un heard of for payment, and if the work provider goes down (even if they phoenix) Then you are a small unsecured contractor and you get nothing.

[paulears]

Keep in mind that some teachers went school/college/uni/teaching - so may actually know nothing at all about self-employment, they've never done it.

 

Ask them what Class 2's are, and see if you get the correct response.

[Jivemaster]

Get some good PAYE work -ie submit a time sheet and get wages paid! Don't get into the position early in your career where you get suspected by HMRC for tax evasion.

 

Get your college to get in either a Chartered accountant or a professional small business advisor to do a session for all the students on starting in business. Unless your college also teaches accountancy then it's very unlikely that any non specialist lecturer knows the current state of the tax law and its benefits and it's disadvantages.