Are you thinking about developing a freelance writing business and not sure where to begin?
There are many sites, posts and articles out there about freelance writing. However, I found it difficult to find a simple post about how to run the business side of things. For example, the tax and book keeping aspects of business.
After a discussion with an accountant, and doing more research I started my freelance writing business as a sole trader. It was relatively quite simple.
This post focuses on the paperwork and management side of business, as opposed to writing and finding clients. Please note that I do NOT confess to be an expert, I have simply read up on the relevant material to my business. If you are after a professional opinion then you should see a business advisor, accountant or other qualified expert.
Please also note that the following advice and information is relevant to Australian businesses, and is by no means an extensive source of tax information.
For further information on tax or business structure, and to check the latest legal requirements you should go to the ATO website.
Australian Business Number (ABN)
The first thing you need to consider when starting your own business is whether you need an Australian Business Number or not.
An ABN is a unique number used to identify your business to the government and community. An ABN does not replace your Tax File Number (TFN), but it is used for tax and business purposes.
In your dealings with clients, they will want to know what your ABN is. It is proves you are a legitimate business registered with the Australian Taxation Office.
With an ABN you can:
- Confirm your business identity to others when ordering and invoicing.
- Avoid Pay as You Go (PAYG) tax on payments you receive
- Claim Goods and Services Tax (GST) credits
- Claim energy grants credits
- Obtain an Australian domain name.
For more information on ABN’s, how to apply for one, and why you need one for your business click here.
You should consider whether you would like to register a business name when establishing your freelance writer business.
A business name is the way you differentiate yourself from competitors and how your customers recognize you and your brand.
In most cases your business name is your most valuable asset. It becomes like a branded image, the name people will associate with you and your work. For example, Bunnings. Unless you have been living under a rock, everyone knows who Bunnings is and what they offer. They are immediately identifiable by their business name.
By registering a certain business name you claim the rights to that name, and no one else (inside of Australia) should be able to use that name for their business.
You will need to have an ABN, or have an application pending for an ABN, to apply for a business name.
See here for more information on business names and how to register for one.
There are various structures available to you when starting your business. As a freelance writer, the easiest and probably most relevant business structure is that of a Sole Trader. However, for your knowledge I have briefly outlined some of the business structures available below.
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The most common types of business structures in Australia are:
- You own the business and are directly responsible for it. I will go into more detail about a Sole Trader business structure below.
- Is a complex business structure.
- Is a separate legal entity, therefore the company can incur debt, sue and be sued. However the company’s owners (the shareholders) are generally not liable for company debts and can limit their personal liability.
- The money the business earns belongs to the company, not you.
- Has higher set-up and administrative costs because of all the additional legal requirements.
- Involves a number of people (up to 20) who carry on a business venture together.
- It is NOT a separate entity (like a company); therefore you and your business partners are personally liable for the business debts.
- It’s relatively easy and inexpensive to set up.
- You and your partners share management and control of the business.
- An obligation imposed on a person, trustee, to hold property or assets for a beneficiary.
- Can be expensive to set-up and operate
- A formal trust deed outlines how the trust must operate.
As I went into business for myself, and only myself, I set my business up using a sole trader structure.
I am responsible for the operation and management of my business. I am in direct control over everything.
A sole trader business is NOT a separate entity, which means come tax time all income I make through my freelance writing business is counted together with my own personal individual income.
Establishing a sole trader business is relatively inexpensive and quite simple. All you need to do is have an ABN and call yourself a business.
You can use your individual TFN to lodge tax returns, although you still need an ABN for invoicing requirements, and you do not need a separate business account.
See here for more information on business structures to find out what would best suit your needs.
A freelance writing business is generally based on work of your own personal skills or efforts as an individual. This means that when it comes to tax time you claim all your business earnings as Personal Services Income (PSI).
“Income is classified as PSI when more then 50% of the amount you received for a contract was for your labour, skills or expertise.” – ATO
An important thing to note is that as a sole trader claiming PSI, your income from your business is lumped in with all your other income. I still work as a registered nurse a few shifts a week, so come tax time I need to show my earnings from my freelance writing business, alongside my PAYG summary from my nursing salary.
If you register as a sole trader, your personal Tax File Number (TFN) is used at tax time to complete your tax return, not your ABN.
I suggest finding a great small business tax accountant who can help you sort out your tax requirements, and if there are any necessary registrations you need to be completing. They will also be helpful in aiding you with different deductions you can claim for running your own business, and especially if you work from home.
Goods and Services Tax (GST) And Business Activity Statements (BAS)
When establishing you business, you will need to ascertain if you need to charge Goods and Services Tax (GST).
GST does not come into play until you have an annual business income turnover of $75 000 or more, at which point GST is compulsory.
Once you have registered for GST then any invoices or quotes you provide your customers will need to have GST added. Keep in mind that all businesses that are registered for GST are also required to lodge BAS statements.
Business Activity Statements (BAS) are a tax-reporting requirement issued by the ATO either on a monthly or quarterly basis. They are used to report and pay your tax obligations.
Once again, it is helpful to have a great small business accountant who can walk you through GST requirements. The ATO website also has examples of how to create an invoice with GST incorporated.
Invoicing And Tracking Income
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There are many software packages and online resources you can use for invoicing, or you can develop your own. As long as you have a way of writing invoices, delivering them to your client and then tracking them, it doesn’t matter how you do it.
I personally have developed my own invoice, using word, and then use an excel spreadsheet to track where the invoice is.
And let’s not forget the importance of tracking your business income. Not only is it necessary for tax purposes, but also you need to know how much you are earning and what you are spending money on. Not to mention, it is a great feeling to see those numbers grow, especially when you are first starting out.
Once again, I use trusty excel spreadsheets to track income and expenses, but you can invest in software, online services or even a bookkeeper or accountant.
Whilst it is not a requirement to have a separate business bank account when running your business as a sole trader, I have found it useful.
I can easily track the income and expenses from my freelance writing business when it is separate from my personal income. It is not a specific business bank account, just another everyday bank account with a linked savings account. I also put 50% of all my business earnings into the savings account for tax time, in case I owe any tax.
I hope this post has helped to clarify how to set up and run your business. Once again, please note that this is relevant to Australian businesses and to also check the ATO website for up-to-date information.
If you have any questions please ask away!
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