I’m wary about giving financial advice as it can be different for so many different situations so I’ve asked Raj from Kona Seven, who offer accounting services for creatives to give us his top accounting tips for bloggers.
Whether you are a full time blogger, part time or just starting out, money is a big factor. The best way to make sure you keep as much of the money you make in blogging to yourself is to have a system in place to account for the income and expenses and do everything you need to do to keep it all legal and above board – there is nothing worse than worrying about money when you’ve done the hard thing and earned it!
Sole Trader or Limited Company?
It’s usually best to speak to a professional about this and get as much advice as possible. Essentially it comes down to personal situation including other income and liability. I would say if you are working with major brands who have global reputations then to go for a Limited Company as you have limited liability should anything go wrong. Also, no matter how much you earn, you only pay 20% corporation tax. If you are a sole trader, your income and expenses are the same as all your other income and expenses and you can end up paying a higher rate of tax if you earn more than the threshold.
Some companies will only work with Limited Companies.
Well almost! Every taxpayer in the UK is entitled to £11,000 (16/17) of tax free income. So if all of the money you bring in is less than £11,000 – you will pay no income tax. This doesn’t mean that until you earn over £11,000 you don’t have to submit all the right paperwork – you still have to do all of that and depending on your decision in Point 1, you may have National Insurance contributions to make.
It might seem like the oldest bit of advice but keeping receipts is a useful way of tracking expenses and saving on bookkeeping fees. Just don’t keep them in a shoebox! The best way to keep track of receipts is to get an index card box and some separators. Make one for each month and file them as they come. When it comes to doing your return, this will make life much easier. Try and print online receipts and invoices or keep them in separate folder and forward them regularly to your accountant.
Use a separate bank account
Not always easy but it can make things easier to separate blogging money and personal money. Using a separate bank account will let you see exactly what comes in and goes out. You can use a separate account for invoices and direct debits for only blogging expenses. If you can get a saving account attached to this then you can use that to put money away for taxes – generally 20% of what you earn is a good rule of thumb. Usually your tax bill will be much less after you take away your expenses and costs and you only pay 20% tax on what is left.
You have right to be paid
A very common problem for bloggers is getting paid. It’s a shame but it does happen frequently. There are actually laws in the UK that protect people from not being paid and you have some options. Read up on the Late Payment Directive which states that you can issue fines and interest on invoices not paid on time, as well as an extra £40 for debt collection. This can go towards the additional time it takes you to chase or towards the cost of an accountant’s letter to chase for you. If you ever have to go to court over non-payment then this paperwork will also help you make your case. 90% of the time, quoting this directive and getting an accountant to chase will result in prompt payment.
If you are still not paid see below.
Don’t ignore unpaid invoices
In case the above still doesn’t work, don’t just ignore the debt. There is a tendency for bloggers to ignore when they aren’t paid for something. Because bloggers don’t usually “sell” goods, they aren’t out of pocket for anything except time. That doesn’t mean that the invoice just gets thrown in the bin, that invoice becomes a “write-off” and you reduce your revenue for the year by that amount.
For example – So far this year you have already earned £20,000 but if a sponsored post for £200 isn’t paid and you don’t have any luck chasing the debt and you can’t afford the money or the time to go to small claims court, then you don’t just ignore the £200, you reduce your income down to £19,800 as you have suffered a loss.
For bloggers, there are loads of expenses you might not recognise or know how to deal with – below are some of the most common expenses for bloggers that are all allowable and should be taken off your income to reduce your tax bill.
- Facebook, Twitter, LinkedIn, etc. Advertising
- Camera Equipment (if used only for blogging)
- Computer Equipment (if used only for blogging)
- Event tickets
- Event transport
- Other related transport
- Some food when away for work
- Food for recipes
Accounting for these properly means you can see how profitable your blog actually is. It is always surprising to see how much of the sponsored post fee is spent on delivering the post. But if you don’t expense properly you can end up paying tax on the full sponsored post fee, rather than what you actual end up with after you’ve paid for everything.
E.g. sponsored post fee £200 for Top 5 Bars in Town.
- Transport to town – £5
- Drink in 2 bars – £10
- Food in 2 bars – £20
- Coffee – £5
- Transport home – £5
Comes to expenses of £45.
If you ignore these costs, your tax bill for the £200 will be £40 (20%). But if you do deduct them it becomes £31 (20% of £155). Likewise if you are still with your fist £11,000 of income, you want to only take £155 off that rather than £200. This also shows you how much you are really being paid for that sponsored post. They may pay you £200 but your take home is only £155 and then you have to pay tax on that which means you only actually get £124 for all that work.
Use a system
Whether it is a spreadsheet, a ledger book or a fully optimised cloud based accounting platform – use whatever suits your levels of transactions and supports you in understanding and keeping track of your finances. If you are comfortable with a spreadsheet then use that. If you have a more complicated or a higher quantity of transactions, use proper software. When it comes to submitting your accounts, it will make life much easier.
Also if you want an accountant or bookkeeper to do it, it will cost you less having done some of the work already.
Free stuff is rarely free
That product you have been sent in exchange for a post, is not free and should not be ignored. If you receive something as payment, this becomes a payment. E.g. if you are sent a bag worth £100 in exchange for a post on it, then you treat it as having received £100 for doing the post, regardless of the fact it is in the form of a product.
The only time this doesn’t apply is when you are given something “for consideration” or strictly “for review”. This is because there is no requirement to do some work for the product.
In the case of travel, when you are given a free flight or hotel room, then this becomes and incidental cost of delivering your service. This can become complicated and there are rules around it so speak to a professional or someone that does it regularly.
Go and make money!
The most important thing about accounting is having something to count! Any time you spend on your finances is a good thing for you and the way you work. Counting your money can give you a boost, making more of it shows growth, chasing debts is fighting for what is yours and paying taxes is contributing to your economy. The reason to invest time and money into your accounting is so that you come away fulfilling all of that in the correct and fair balance for you. Receive what you have earned and pay what you owe, then get on and blog, because that’s really what we all want you to be doing.
Raj Dhokia – Managing Accountant at Kona Seven. An Accounting Company for Social Talent.