Bookkeeping Tips for Freelancers

As a freelance offshore worker, you’ll have the opportunity to work in some of the most beautiful places in the world, whether that’s in the Gulf of Mexico or closer to home in the North Sea.

While this career track offers numerous advantages, not having an employer means shouldering the responsibility of doing your own finances and taxation. Bookkeeping, therefore, is a vital skill.

If you’ve found an opportunity to work abroad, especially if it involves multiple clients and jumping to different rigs and vessels, then you need to work on several bookkeeping tasks to make sure you stay compliant and that you’re financially stable.

Legal Requirements for Offshore Workers

Offshore workers, according to HMRC, fall under the following criteria:

• Working on oil and gas rigs and other offshore installations
• Employed on pipe laying vessels
• Doing ancillary or support work for the oil and gas industry

If you’re going to be working within UK waters, then you will still be subject to the majority of the country’s tax laws (e.g. income tax, capital gains tax, etc). These do not apply however, when you’re working outside UK territory.

Accountants generally advise offshore workers to create their own limited company, as this is the most tax-efficient route. If you’re not working with an accountant, the government has published a step-by-step guide on registering your limited company that you can follow. That being said, it is advisable to work with an accountant as they can potentially save you money in the long run.

Tax Residence Status

Before leaving for your next job, you first need to determine your tax residency status, so you’ll know whether you’re still taxable in the UK on your foreign income or not.

How long will you be working abroad? Keep in mind, as well, that plenty of offshore jobs are contracted on fixed-term (e.g. a year) or one-off contracts, but it’s not uncommon for these short-term projects to turn into long-term ones that can last for a few years.

For freelance offshore workers, there are a couple of potential situations:

1. Working abroad for less than a tax year

If you’re going to be working outside the UK for less than a tax year or on a casual basis, there may not be any changes with your taxation. The results of your Statutory Residence Test will determine whether you’re still taxable in the UK based on how many days you are away.

A self-assessment tax return will also be required so you can report your earnings to the government and claim any tax relief.

2. Working abroad for more than a tax year

On the other hand, if you’re working abroad for longer than a tax year, you may not be considered a resident anymore. For this to happen, you have to satisfy the requirements of the Statutory Residence Test, including:

• Visits to the UK in any tax year amount to fewer than 183 days
• Visits to the UK amount to an average of 91 days per tax year over a period of four years
• Family ties
• Social ties (e.g. club memberships)
• Work ties (e.g. director of your limited company)
• Property under your ownership in the UK

If you leave the UK in the middle of a tax year, you can consider that as split-year treatment, wherein you split your tax year into resident and non-resident halves.

Note that the country you’ll work in might still require you to pay taxes, depending on their own laws. Some countries also have double-taxation agreements with the UK.

These rules may change, following UK’s separation from the EU.

Tax Refunds

There are several tax breaks you can claim as a contractual offshore worker:

• Travel expenses to what HMRC considers “temporary workplaces” (places where you’ll go to for a limited duration or a temporary purpose)
• Offshore travel expenses for transportation you used to get to your destination (e.g. car rentals, public transport, plane tickets, taxi fare to the hotel, etc.)
• Accommodations you need to rent (e.g. hotel rooms), as well as meals purchased, before going to your rig or vessel
• Any tools you may need to purchase out of your pocket to do your job

You can claim tax refunds on expenses you incurred up to four years prior via your self-assessment tax return form. For temporary workplaces, however, you need to claim these within 24 months.

You can expect anywhere between £600 and £700 of tax refunds per year. HMRC will take about 8 to 10 weeks to process your tax refund.

Bookkeeping Best Practices

Although you’ll have clients who will supervise your work abroad, they are not going to remind you to file your paperwork once tax season rolls around. Follow these bookkeeping tips below, so you’ll stay on top of your expenses, tax payments, and invoices:

1. Keep All Financial Records

You won’t be able to claim expenses if you don’t keep all important financial records and receipts, especially for expenses that are considered tax deductible and tax refundable (e.g. accommodations, transportation).

Don’t underestimate this task, as you’re guaranteed to rack up expenses over the course of all your offshore projects, especially if you move from one country to another.

Apart from receipts, you also need to keep the following:

• List of rigs or vessels you worked in (make sure you get a copy of your rig/vessel history)
• Identification documents (e.g. passport, driver’s licence)
• Monthly payslips or invoices

You need to store your documents for five years after your tax return submissions deadline.

2. Separate Professional and Personal Accounts

One of the surefire ways to lose track of your finances is to keep them all in one account, so open separate accounts for business and personal assets. This way, budgeting will be easier, because you’ll know how much money you can spend on your daily expenses and how much needs to go back into your business.

3. Be Organised

To manage your finances easier, you need to have a system in place, so you won’t rush through balancing your books. To be more organised, follow these steps:

• Keep track of every income gained and expenses incurred during your contract work
• Issue unique reference numbers to all your invoices
• Have an organised filing system (e.g. folders, envelopes), especially for hard copies of financial documents
• Label your financial documents, so you won’t forget what they were for
• Scan receipts and keep images on your computer or on the cloud, as the ink on paper might fade over time
• Invest in an online accounting software to make financial tracking easier or use Excel or Google Sheets if you’re on a tight budget

4. Establish A Bookkeeping Routine

Set aside around 20 to 30 minutes at the end of every week to update your records. If you don’t have a lot of expenses, you can do it every fortnight or at the end of every month. The idea is to establish a routine, so you won’t lose important paperwork or scramble to get everything done at the last minute.

Keep in mind that there are 52 weeks in a year, which means you need to keep track of 52 weeks’ worth of expenses when the end of the tax year comes around. Don’t take the risk of cramming in the last couple of days, as it’s not uncommon to find you have lost receipts or need to reprint invoices.

5. Work With A Professional Accountant

UK tax laws, especially those that apply to freelance offshore workers, can get complicated. If work is too hectic or taxes feel a bit taxing, and if you have the resources for it, it’s generally a good idea to seek advice from a qualified accountant. They can not only lift that burden off your shoulders, help you stay organised, and make sure your business stays compliant, but they can also identify cost savings that you maybe hadn’t thought of.

Keep in mind, however, that if you choose to work with an accountant while tax deadline looms, you might not find an available one as tax season is their busiest time of the year. And if you do, they might charge you more for processing your accounts in a rush. So decide early on and commit.

6. Make Sure Your Clients Pay On Time

Since this is your bread and butter, you’ll want to make sure that your income is coming in on a timely manner. Do the following:

• Check that your contract indicates every pertinent detail of your project, including how much you’ll get paid, when you will get paid, and any repercussions for delayed payments
• If possible, get paid upfront (partial or in full)
• Invoice promptly
• Set reminders for yourself and your clients if an invoice is approaching due date
• Identify any late payments and politely ask for updates

Looking for your next offshore contract? Whether you’re after short-term or long-term work, take a look at our jobs page and see if there’s anything available in destination of your choice.