Since it’s been quite a while since the last round of blogger business tips, I decided it’s high time to share some more advice and information on these things with you.
Today we’ll look at your favorite subject: money, i.e. earning and self-employment.
Whether it’s a hobby for you or your main profession, if you wish to earn money with blogging you need to become self-employed. Don’t worry, it sounds more scary than it actually is. In the following post, part of the Blogger Business Series, I have a little 101 on self-employment for you, with focus on the first steps into a blogger existence. We will look at the following questions:
How do I register as self-employed?
What do I have to bear in mind, taking that step?
Which legal form is right for mw?
How do I write correct invoices?
How do I pay my taxes?
I am writing this post in collaboration with Sage One, provider of the online accounting software with the same name, who also support this post.
Since in the early stages of self-employment turnover will be small or non-existent, it usually makes sense to start as small enterprise. This means that the limit for income in the year of foundation is 17.500 EUR per annum, followed by a maximum of EUR 50.000 int he subsequent year. As long as your turnover (not earnings!) remains below the EUR 17.500 mark, you are a small enterprise. If your turnover exceeds EUR 17.500 but remains below the EUR 50.000 mark, that is also fine, as the tax authority automatically assumes growth in the second year.
In other words, if you stay under the 50.000 mark in the second year there will be no consequences. Please bear in mind that the limit of EUR 17.500 is an annual limit, which only applies in full if you found register your company in January. The formula goes like this: 17.500 EUR / 12 * x (month). If, for example, you register in July, you may only earn half that amount in the remainder of the year.
If business happens to boom and you exceed this limit, standard taxation applies, which means you will have to pay VAT, which in turn requires registration for turnover tax advance return. The tax office is not obliged to point this out to you – you need to keep close track of your turnover figures. In such a scenario, all invoices of the entire year need to be adapted, and VAT has to be charged retroactively. An elaborate and time consuming process. For that reason I would advise against exceeding the limit, and instead charging the surplus amounts in the subsequent year.
This is the first instance where the advantages of an automated accounting software become obvious. Sage One helps to keep track of turnover, and has a function to file directly with the tax office for turnover tax advance return. The software offers big advantages especially in the early stages of self-employment, and it really comes in handy that Sage One was optimized for small enterprises.
Registering a business – yes or no?
Many young bloggers wonder whether they are required to register a business, which of course means having to pay trade tax for running a business. As a freelancer, the advantages seem to be manifold in comparison. Nevertheless, the answer to the question is: YES.
In German law, §15 paragraph 2 EStG (Income Tax act) defines business activity as follows:
– The business is sustainable and has a long-term prospect
– It is run on a for-profit basis
– The business enters trade relations with other companies, exchanging goods and services independently
Conclusion: If you include sponsored links or affiliate links on your blog, business regulations apply, and you are not considered an artist or writer in legal terms.
How do I register?
Registration usually takes place in the respective citizen’s office (Bürgeramt) or the local municipal authority. These days, many cities and communities (among them Berlin) offer the possibility to register your business online. Registering a business is relatively easy, and doesn’t break the bank (in Berlin the charge is EUR 15). Usually the authority provides a step by step online guide to facilitate the process.
This really saves a lot of time, as otherwise you’d need to make an appointment at the trade office. After the registration you automatically receive a questionnaire by the tax office with which you register for tax. This step forms the basis of your registration as self-employed professional, and it is mandatory. Again, in most cases a step by step guide should be provided. After successful registration you receive your tax ID; with which you will proceed to do business.
By the way: a VAT ID needs to be requested separately. This is only necessary if you participate in the so called Intra-Community Trade. For bloggers, this means that if you purchase goods or receive services from abroad (e.g. if you work with a photographer who is registered in another EU country), you need a VAT number.
Being self-employed means you have to take charge of your invoices and keep track of your earnings and spendings.
It usually makes sense to open a separate business account in order to keep things transparent and to properly separate business dealings from private transactions. In the beginning it’s easiest to open an extra account at the same bank you already have your private account with. You are required to write invoices for all your earnings from business transactions. The Value Added Tax Act specifies in detail which components a valid invoice needs to contain:
• Name and postal address of the service provider (your business)
• Name and postal address of the service recipient (your client)
• Your tax ID or VAT ID
• For clients from outside the EU, their VAT ID
• Invoicing date (when was the invoice written?)
• A unique, consecutively assigned invoice number
• Specification of goods or services delivered including quantity and/or time-frame
• Date of rendering services / product delivery
• The net amount charged, the applicable taxes, the tax rate and the gross charge
Moreover, it makes sense to include the following information, even if it is not legally required:
• the term ‘invoice’ (provided you are not writing an offer, delivery note or comparable)
• personal contact details like a-mail address and telephone number for queries
• payment term
• bank data
NB: Different laws apply to small businesses! They pay now VAT, and are not allowed to charge VAT on their invoices. Instead, small businesses are required to include a reference to §19 of the Value Added Tax Act. I recommend you create a template for swift and easy reference at any point in time via the cloud-based software. That way, you only need to change the wording of the actual service along with the numbers.
By the way, the same is true for offers:
Once you have created a template according to your needs, subsequent adjustments will be painless and hassle free. This saves tons of time.
A tip from personal experience: many companies take their time with paying invoices, some of them as long as six months. Generally speaking, the larger a company, the longer you will have to wait for the transaction. I have once waited for a full year for payment. Foreign agencies really do take their time. Bear that in mind, and do not allocate all the money in advance – spend it when it’s in your account .
What does that mean?
I would recommend to anyone to compile all (!) bank account statements in a folder a regular intervals (I do it once a month), and to make sure that there is a receipt (which meets the invoicing criteria outlined above) for every transaction. The principle of proper accounting is:
No accounting entry without documentation!
I staple every receipt to a separate sheet of paper, and sometimes photocopy them (especially when the receipts are printed on thermo paper, or if the amounts are very high). Receipts for entertainment expenses (those long restaurant receipts) are best filled out immediately, as it can be quite a hassle to try to reconstruct at a later point who you met and what you were discussing at that date.
This form of bookkeeping is not only important for your own comprehensive overview, it is also crucial in case of an audit. There are numerous other aspects to accounting, like e.g. invoicing abroad, travel expense accounting, the logbook and receipts of over 150 EUR, but I think that would be too much detail at this point.
With all that in mind, it is crucial that you are aware of the large responsibility you shoulder for your accounting when entering self-employment. You should be aware that good accounting practice really is one of the main pillars of successful entrepreneurship. It makes all the sense in the world to engage with it, even if it all sounds at bit intimidating and overly complicated (which, to an extent it is). The fact remains that it can make or break your business, and you should by no means neglect it.
Taxes & Co
Which taxes do I need to pay and when are taxes due?
The amount and due date of taxes is generally specified by the tax office in a tax bill. VAT on the other hand is payable without additional request. VAT returns have to be submitted by the 10th of the following month. The largest burden is the income tax, which is assigned individually depending on a number of varying factors (children, spouse, etc.). The maximum tax rate is at 42% in Germany. Sales tax is another considerable chunk (19%). I recommend putting this money to the side as soon as you receive it, as it is ‘not technically yours’.
And then there’s business tax, which comes into effect once the mark of EUR 24.500 in earnings is breached. If you earn more than that amount, the tax only applies to the surplus. The exact amount of business tax depends on your municipality.
One advantage: as self-employed professional or business partnership you can deduce 3.8 times the specified tax rate from your taxable income, which also lowers the income tax burden. If you have been in business for a longer period, you should expect advance payments. The tax authority requires these advance payments to counter-act exceedingly high tax payments at the end of the year. This practice is the root of some bizarre neologisms like ‘retro-active advance payment’ (advance payments that are based on the most recent tax bill and tax deductions). The disadvantage is that you are required to be solvent at all time, but on a positive note it means that the actual income tax remains manageable and doesn’t cause too many headaches, as you already paid a large part of it in installments over the year. On top of taxes, you are also responsible for insurance payments, including, if applicable, artist’s social insurance (called KSK in Germany).
Taxes are a tricky subject, and mistakes can get very expensive. You should really engage with the subject responsibly. The situation is further complicated by the ever changing legal landscape, and the fact that you will alway be personally responsible for accounting mistakes, even if they were made by your tax consultant. Being on top of your finances is all the more important. Make sure to always have enough on the side to avoid the debt trap. Self-employment means, first and foremost, responsibility. You have to be willing to take that responsibility, and consider the step into self-employment very honestly and seriously.
In collaboration with Sage One