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One of the biggest challenges of becoming a freelancer is deciding how much you should pay yourself. Over-price and you may lose yourself some vital work, under-price and you set the bar low and risk not earning enough for a project.

There’s a few things to consider before you start jumping into pricing your work such as how to pay your tax and how to charge.

Charging Hourly vs Project-Based Pricing

When starting out as a freelancer, pricing is very much a question of trial and error. Without experience it can be difficult to know how to value your work and what your clients will be happy to pay.

Charging hourly at the start of your freelancing career can be good because you’re working on time rather than value. For the beginner freelancer, this is a good way to gain an idea of how much time you spend on a project, and how long it takes you to complete a good standard of work.

However, after a few months of freelancing this can become counter-productive. As your content gets better, you will become more skilled at completing great work in a shorter space of time, meaning less money. Instead, the ideal thing to do is value your work on each project. By this time you’ll have a rough idea of what your project is worth and how much a client will be expecting to pay.

New Salary Issues

As you become more experienced at this freelance thing, there will be a whole new bundle of obstacles that come hurtling towards you (no one chooses freelancing because they think it will be easy). As your business grows and you become more proficient at creating content, you’ll be making more money (we hope!).

With this growth in business you’ll need to consider extra expenses to accommodate the growing workload. Such expenses may include hiring a web designer to get your content looking professional (unless you are a freelance web designer, in which case – sorted!), renting a work space to get out of the house and accounting expenses.

All of these may be viewed as optional, but if you work hard enough then they definitely aren’t! If your business is expanding at such a rate then these are all things to take into consideration.

Tax Efficiency

Becoming tax efficient is the main step between loving working for yourself, and hating it. If you aren’t as tax efficient as possible, you could be losing money and work will become a drag. The two main differences are if you’re operating as a self-employed sole trader or as a limited company.

Sole Traders’ tax obligations are simple, they must make Class 2 NIC contributions monthly (which you can do via Direct Debit) and submit a Self-Assessment Tax Return once a year. We suggest setting a certain amount aside for tax, or even setting up a high-interest bank account to keep the money in.

However, setting up a limited company is often a more efficient way for the freelancer to pay tax. This consists of the freelancer setting up a limited company of which they are director and employee of. In this way, the freelancer will take income as a combination of salary and dividends.

If you’re struggling with your freelance accounts, ask one of our accountants any question for free here. Or grab an instant online quote on our freelancer services 

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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