Freelancers: tips for handling late payers

Freelancers: tips for handling late payers

We recently attended a networking event organised for freelancers, and the most asked about topic was ‘how to handle late paying clients’.

I didn’t realise how much of a problem this is for freelancers. Well, after some research, I found out it is a massive problem. I couldn’t find any exact figures relating to freelancers, but according to SME Insider, SME’S are now owed more than £255 billion in late payments.

If an SME is paid late, their cash-flow is messed up, meaning they end up paying their suppliers late. It’s a vicious circle.

So, how do you handle late paying clients?

Burying your head in the sand and hoping it will solve itself, will not work. Follow these steps to help you stave off late payers:

Carry out pre-relationship checks  

For any new client, you are thinking of taking on, try to find out as much about them as possible. If they are a limited company

So, how do you handle late paying clients?

y, their details will be registered with Companies House. Information available on the company includes: their registered business address, accounts and annual returns. All important information, in deciding if they will be able to pay you for the work you have done.

If they are not registered with Companies House, take to the internet to see what you find on them on review sites and freelance forums.

Get your own house in order

Set out your T&C’s at the start of your working relationship. These should clearly state your invoice and payment terms. Normally, payment is due 30 days from when the invoice is issued.

Track every step of the payment process: the date the invoice is issued, when payment is due, the date you issued a reminder for payment and the extended payment deadline. What system you choose to use for this, is up to you. You may find a simple spreadsheet is sufficient, or you could invest in using an online accountancy portal that automatically issues invoices and reminders for late payments.

Don’t be shy about speaking up

If a client is late in paying, don’t feel awkward about reminding them that payment is overdue. It could just be an oversight on their behalf.

When you contact them, initially do it by phone (make sure you know who to contact about payments) and follow this call up by an email. Ask them to reply by email as well. It is important to document all communication in writing, in case any disputes do arise.

Be prepared for the break-up

If all attempts at getting paid fail, be prepared to tell them that all future work will be put on hold until they clear the overdue payment. This action could see the end of your working relationship. But, if it comes to this, do you want to work with them anyway?

This shouldn’t be the end of it, as they still owe you money. Depending on how much they owe, it may be worth claiming it through the small claims court. The .gov website explains in detail how to go about it and the fees involved.

In summary, always air on the side of caution when dealing with clients. The majority of them will pay you on time (hopefully), but you will occasionally come across one or two who are frogs. In that case, be prepared to make them ‘croak up with the cash’. 

Advantages of a contractor accountant

Why a contractor accountant is a valuable addition to your company 

Deciding to become a contractor is a life choice. Most contractors say they love the freedom it gives them and they enjoy being able to offer their specialist skills to different projects.

If you intend to make contracting a life-long career choice you have to decide on a set-up that is the most financially beneficial. Most contractors find that working via their own Limited Company is the most tax efficient way to work as a contractor.

When you incorporate your Limited Company, you will more than likely register yourself as a director of the company. With this directorship comes a number of responsibilities. Managing the financial affairs of the Limited Company is one of these.

There are a number of sophisticated online / cloud accountancy software packages available on the market that allow you manage the company accounts yourself. Deciding to ‘do it yourself’ may seem like an easy task and a money saving option.

However, the savings you think you may be making through not paying for the services of an accountant could actually be costing you money. The time you spend on; learning how to use the software, understanding tax rules and making yourself familiar with relevant regulation and legislation. Is time taken away from doing paid work.

A specialist contractor accountant will:

  • save you time – the time you spend on doing paperwork and working on your accounts could be time spent on working and earning money
  • give you advice on what forms need filling and what information needs to go on the forms
  • keep you updated on the ever changing tax rules
  • help you operate in the most tax efficient manner
  • advise you on what taxes need paying and when. Therefore reducing your risk of receiving a penalty notice for incorrect or late payment.

We recommend reading our article ‘Looking for a match made in heaven: Tips for choosing the right accountant’ which looks at how to find the accountant that is right for your business.

Alternatively, give us a call on 020 8952 2234 and we would be delighted to discuss your requirements in further detail.

Contractor and Freelancer Insurance

Are you protected? It may be a contract stipulation, so read on….

It’s becoming more common for contractors to acquire liability insurance policies. Contracts, more often than not, state that contractors must have professional indemnity insurance and/or public liability insurance.

Where contracts don’t make reference to insurance specifics it’s still the case that the prudent contractor considers relevant policies to give peace of mind.

Increasingly, litigation in many sectors means that contractors can be in the firing line if things go wrong. This has become one of the main reasons why Professional Indemnity Insurance has become a “must have“ policy opposed to an option.

What is Professional Indemnity Insurance

As we mentioned above it is not always compulsory to have Professional Indemnity Insurance, but if you provide expertise, skills or advice to clients, or have access to clients’ confidential information, or produce materials that could cause offence or infringe intellectual property rights and provide a professional service and could be challenged on your work, then we strongly recommend that you purchase Professional Indemnity Insurance.

Do I need insurance?

Our philosophy is that it is better to be prepared than be caught out. Your work may be top rate and you have never had a problem in the past. However, if the time comes and a client does think you have made a mistake that has financially cost them, your Professional Indemnity Insurance will cover you. Without it, it could be catastrophic for your business.
Professional Indemnity Insurance will cover you for the legal costs involved of defending yourself in a professional negligence case, including any compensation pay-out at the end.

Public Liability Insurance

Public Liability Insurance offers protection to your business if you deal with the public, if you have clients visiting your offices or if you or a colleague need to make visits to client’s premises. For example, if a client visits your office and they drip over a chair and injure their leg, then Public Liability Insurance will cover you for this.
You may feel that this is type of insurance is not applicable to you, but some clients now insist that you have some level of cover, generally a minimum of £1M.

What does Public Liability Insurance cover?

Public Liability Insurance will cover you for legal costs and damages if someone brings a claim against you and you are found liable.

Is it an expense my business can afford?

Professional Indemnity Insurance and Public Liability Insurance premiums are dependent on the type of work you do, the level of cover you require and the number of employees you have. They can start from a low level and increase accordingly.

To put it into a perspective, if a court case is brought against you, it could cost your business thousands. You need to ask yourself, can my business afford this if I don’t have insurance?

This article was provided to us by Caunce O’Hara, a commercial insurance broker, offering a full range of insurance products to contractors and freelancers. Visit their website:

Contractors: find your way through the tax maze

Taxes that you need to pay as a contractor

Working as a contractor has a great number of benefits, but the one downside (maybe) is taking responsibility for what taxes have to be paid.

Most contractors choose to operate via a Limited Company as it is the most tax efficient route. However, as a director of the Limited Company, you will be responsible for making sure the correct taxes and the right amount of taxes are paid on time.

Engaging the services of a specialist contractor accountant will lessen the burden of working out what taxes are due and when. However, ultimate responsibility still lies with you.

Making your way through the muddy maze of tax

We are not suggesting you become an expert in taxation (that is what we are here for) but it is important to have some knowledge of the taxes you will be required to pay.

To understand what tax is due and when, it is simpler to break it down into the tax your Limited Company has to pay and the tax you have to pay, also known as Personal Tax.

Limited Company

Corporation Tax

Corporation Tax is a tax on company profits. Current rate is set at 20% and will fall to 19% for the year beginning April 2017, and to 17% for the year beginning 1 April 2020.

If you have taxable profits of up to £1.5 million, Corporation Tax must be paid 9 months and 1 day after the end of your accounting period.

If taxable profits are more than £1.5 million corporation tax must be paid in instalments.


VAT is an extremely complicated area of tax. A lot of first-time contractors are unsure if they are required to be VAT registered. Our article ‘To VAT or no to VAT that is the question’ looks at who is required to be VAT registered.

For contractors who are required or want to be VAT registered, choosing the Flat Rate Scheme (FRS) is the easiest option. Our article ‘Choosing the right VAT route’ explains the Flat Rate Scheme in further detail.

What happens if I get VAT wrong?

If you make a late VAT payment to HMRC, it could be recorded as a ‘default’. Following this, you enter into a ‘surcharge period’ which usually lasts 12 months. If during this period you ‘default’ again, you may have to pay an extra amount on top of the VAT you owe. Further information on VAT surcharges and penalties can be found on the .Gov website.

Supplying incorrect information that could lead you to “underestimate the tax due” or “mispresent the tax liability” could see you being hit with a penalty charge. Each tax has its own specific rules when it comes to charging penalties. In general, the size of the penalty charge depends on how the mistake was made, for instance, if:

  • the mistake was made through a lack of reasonable care (e.g. not keeping accurate records) the penalty will be between 0%-30% of the extra tax due
  • the mistake was deliberate, the penalty will be between 20%-70% of the extra tax due
  • if the mistake was deliberate and it was concealed, the penalty will be between 30%-100% of the extra tax due

Personal Tax

Self- assessment

As a director of your Limited Company, you need to register for self – assessment and complete a personal tax return, the tax year is 6 April 5 – 5 April the following year.

You need to register if you haven’t previously filed a tax return. The deadline for registering is 5th October following the end of the tax year in which your income first arose.

Once registered, you can either submit your return by completing a paper tax return or by filing online.

Filing Dates – avoid unnecessary penalties by missing the deadline:

  • A paper tax return must be received by HMRC by 31st October following the end of the tax year.
  • Online tax return must be received by HRMC by 31st January following the end of the tax year.
  • The deadline for paying the tax you owe is 31 January.

You will get a £100 penalty if your tax return is up to 3 months late.

Income Tax

If you take a salary from the Limited Company (most contractors take a small salary and the remainder via Dividends), this is taxed via Income Tax. The amount of tax payable depends on the amount of income that is over the Personal Allowance and how much of this falls within each tax band. For 2016/17 the Income Tax rates and bands are:

Income up to £11,000 = 0% (assuming you have the standard personal allowance of £11,000)

Basic rate: £11,001 – £43,000 =20%

Higher rate: £43,001 – £150,000 =40%

Additional rate: over £150,000 =45%

Note: Your Personal allowances may be more if you claim marriage allowance or less if your income is over £100,000.

Dividend Tax

Please note that under the new dividend tax regime you will be liable for additional dividend tax on any dividend income over £5,000 that is not covered by your personal dividend allowance.

The tax bands will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

If you are subject to any additional tax liability, it is paid through the personal self-assessment tax return system.

Tips to reduce the risk of getting it wrong

Our simple advice is, when it comes to tax, check everything carefully and seek expert advice. We have included some tips to help you from making mistakes:

  • Be honest, never try to hide anything
  • Read all paperwork thoroughly and seek help if you are unsure of anything
  • Fill in all relevant sections
  • Return paperwork within the time stated
  • Pay your taxes on time
  • Keep organised records (rushing around to find invoices / receipts etc, will lead to you making mistakes)
  • Review your accounts regularly
  • Employ the services of a specialist proactive accountant (such as ourselves) who will advise you on the amounts to pay, when to pay and who to pay it too.

If you think you have supplied your accountant or HMRC will incorrect information, contact them immediately. It is better to admit your mistake and deal with the consequences.We will be covering PAYE and the penalties for late payment in another separate article.

We will be following this article up with a in-depth article discussing PAYE and the penalties for late payments.

If you need advice or guidance on any of the areas discussed in this article, please give us a call on 020 8952 2234, or Request a Call Back.