Unless you’ve been hiding under a rock or you’ve already left the UK for a new life in Dubai, you will have heard many rumblings about what our new ‘leader’ is planning to do to generate more revenue for his government. If you haven’t heard, it is really all about taxing everything apart from the air we breathe (so far).
So, why does this matter to you as a freelancer? Because they could be coming for more of your hard-earned cash! There is a lot of talk about dropping the VAT threshold down to as low as £30,000 a year. This means anyone – whether that be a sole trader or limited company – that hits an income (turnover) of £30,000, will now have to start paying (charging) VAT. You have two options if this becomes our new reality:
Personally, I would advise you to charge it to the client because VAT is really a tax to the customer. When you become VAT registered, you essentially become a tax collector for the government – a middleman if you like. I predict that the businesses that will survive this proposed VAT introduction will be the ones that add it onto their prices rather than absorb it.
As I write this, we don’t know if they will make us charge 20% or 13%. Hopefully it won’t happen at all, but if this does come to pass, it won’t just be hairdressers, it will be all small businesses and self-employed people. If you currently haven’t got your prices worked out to the penny and the gram, then now is the time to confront your numbers and make changes.
If you are currently priced for a minimum of 20% profit on your prices and you’re booked out, you could choose to do a smaller increase and absorb some of the VAT initially, especially if you are worried about out-pricing yourself (but you know how I feel about higher pricing already!). If, however, you are currently priced just to cover costs, then you will have no option but to revisit your prices and add the VAT on.
Running a business has hurdles such as this, and the response we need to take is a pragmatic one. Would a VAT introduction at £30,000 be ideal? No. Is it business ending? No – as long as we face it unemotionally and pragmatically. My advice is to revisit your prices using the pricing app (The Freelance Suite) and make sure you are priced for a minimum of 20% profit. This will hopefully be enough to allow for any VAT introductions should they happen. If they don’t, then you will have a very prosperous 2025!
As well as revisiting prices, I would start looking at ways to increase your reach to potential clients so that you have a constant influx of new clients and bookings for your services. You can never be too prepared.
