Becoming a freelancer: Procedures, operation and taxation

So there you are, after long nights of reflection, the decision has been made? Do you want to become self-employed?

This guide is exactly what you need. Once you’ve read it, all that’s left for you is to put it into action, and be patient for a few weeks before your business sees daylight.

What are we going to talk about? I suggest we follow these steps:

• What does it mean to be self-employed?
• Are there different legal forms for becoming a freelancer (sole proprietorship)?
• What do you need to do to start your own business?
• Can you hire staff if you are self-employed?
• Account-keeping and taxation as a freelancer
• Pensions for the self-employed

Oh, and if you’re still hesitating about starting your own company rather than going the freelance route, take a quick sidetrip first.

What does it mean to be self-employed?

In a nutshell, a self-employed person must have a number of very specific characteristics that differentiate him from an employee:

· Working on your own behalf:

When you become a freelancer, it seems obvious that you have to represent yourself and your company. You speak on your own name and you conclude deals on your own behalf.

· Assume the economic risks:

It may seem obvious, but a self-employed person assumes the economic risks of his business alone (or with his partners).

o Financial difficulties

It’s never going to be a smooth ride, especially in the first few years. You’ll need to be able to support your business financially. You’ll need to find your customers and charge prices that will keep your business afloat.

o Invoicing

In addition to carrying out the mandate for which you are responsible, you will send the invoices yourself and ensure that they are paid. Risks associated with invoicing and late payment are not uncommon.

o Unemployment

Unlike being an employee, becoming self-employed means that you can no longer claim unemployment benefit because you are unable to fill your order book. The only assistance you may receive is to help you get started (the first 90 days) if certain conditions are met: https://www.bsv.admin.ch/bsv/fr/home/informations-aux/kmu/fall-zu-fall/selbststaendigkeit.html

· Assume the reputational risks

Every time you make a mistake, delay delivery or misunderstand something, you’ll be the only one to blame. It’s up to you to build up a relationship of trust with your customers and a good reputation in the marketplace over time.

· Having your own organisation (office, equipment, address, invoicing)

Becoming freelancer also means creating a complete organisation. You need to be able to acquire the skills, tools and software that will enable you to carry out your projects from prospecting customers to sending the invoice.

· Keeping your accounts

o VAT

Value added tax will probably have to be added to your services in addition to your price. It is compulsory in almost all cases, with a few exceptions (low revenues, service sold outside Switzerland, etc.).

o Accounting

As well as finding clients, carrying out orders and sending invoices, you’ll need to keep accounts (simplified or otherwise) in order to comply with the tax authorities. We suggest you find out more about that in a second article dedicated to the self-employed and tax.

· Be able to work for several clients / principals

In short, if you work for a unique client and do your work from their office… then you are not really self-employed but simply an employee of that organisation. Over time, your mandates need to multiply and be applicable to a varied clientele.

Are there several legal forms for becoming a freelancer (sole proprietorship)?

A one-person business, as the name suggests, is a business run by a single person, known as a sole proprietorship. However, it is also possible to become independent by working with several partners, in this case a general partnership. This solution is often used by lawyers, doctors and restaurant owners, for example.

Basically, these are companies where the person(s) is/are the key and the image of their business, to such an extent that it is compulsory for the family name to appear clearly in the business name.

What do you need to do to start your own freelance business?

Strange as it may seem, it can clearly help to start your independent business before taking any administrative steps.

We recommend that all future self-employed people start canvassing for clients, carrying out their first assignments and creating their first invoices before they start knocking on the doors of the AVS and the commercial register. Why do you think that is?

It is the first pillar that will be responsible for giving the green light to your activity and to do this they will have to evaluate your business: Can it find customers? Does it have a solid business plan? How does it work?

In other words, to prove to the first pillar that you’re on the right track, there’s nothing better than providing tangible proof.

What happens next? Once you’ve launched your business, you’ll need to start the process of filling in forms and waiting for the various parties involved to validate your registration.

Step 1: Gather your various documents

The more tangible documents you have, the more successful your affiliation will be:

• Drawing up a business plan
• Sending customer quotes
• Collecting your first invoices
• Have a website
• Have a logo and graphic charter
• Rent an office
• Create your own email address
• Design your own business cards
• Etc.

Of course, not everything is compulsory, but the more strings you have to your bow, the greater your chances of success.

As you can imagine, at FBKConseils we’re here to help you with any questions, simulations and, in particular, to help you create your website, your logo and your business plan.

Once you have these documents, nothing could be easier: a few phone calls, a few trips to the post office, a little patience and you’re all set. You’ll be registered as a freelancer, and success is only waiting for you.

Step 2: Registration to the 1st pillar

It’s as simple as answering a few questions, filling in the form and attaching as much supporting evidence as possible to your application.

Step 3: The commercial register

If your turnover is less than CHF 100,000, it is not compulsory to register your company, but that does not mean that it is not a good idea to do so voluntarily. The commercial register allows you to show your customers that you exist and gives your business credibility. The commercial register can also provide a form of protection for your name or brand.

Step 3: Registration for VAT

As with the commercial register, the value-added tax stage is optional up to a turnover of CHF 100,000. Above this threshold, you will have to add a percentage to each invoice, which you will then have to recover and pay back. In return, you will be able to claim a refund of the VAT you pay for your business.

Can you hire staff if you are self-employed?

Yes, and that’s one of the characteristics of a self-employed person. He must be able to delegate work or hire staff to help him carry out his assignments.

There is no limitation in terms of employees.

However, if a self-employed person has maximum flexibility when it comes to 2nd pillar contributions, loss-of-earnings insurance and, more generally, the insurance policies they wish to take out, if they wish to take on staff they will have to comply with all the employee protection rules.

Account-keeping and taxation as a self-employed person

As someone who’s been there, and given that my field of activity is an integral part of my job, accounting and taxation can very quickly become the nightmare of any self-employed person.

It’s not always easy to understand, but it’s an obligation, and if it’s not done properly it can lead to mistakes that can cost you a lot.

To give you more information on the subject, we have created another article specially designed to answer tax, accounting and VAT questions for freelancers.

For now, here is some initial information.

Accounting: There are two types of accounting

· Ordinary accounting

It’s accounting that is almost always carried out by an accountant (preferably a qualified one). This is the kind of bookkeeping that obliges self-employed people to follow precise accounting standards in order to submit to the relevant authorities a profit and loss account (income and expenditure for the year) and a balance sheet showing your assets, debts and profit brought forward. Fortunately, this type of accounting is not mandatory for all self-employed people who are just starting out or who own a business with an annual turnover of less than CHF 500,000.

· Simplified accounting

Fortunately, this version exists, and allows you to keep a milk book or Excel spreadsheet (since the 2000s) which simply lists your income for the year, your expenditure (by item) and the social security contributions you have paid. If you hold stock, you can also simply mention the type and price. The great advantage of this type of bookkeeping is that it can be done by any self-employed person without the need for any special training. This doesn’t mean, however, that you shouldn’t call in a professional to check what deductions are possible and whether certain packages are used.

Taxation of freelance workers

A self-employed person is not very different from a salaried employee. The only difference is that they don’t have a salary certificate, but instead they keep accounts. Everything else is pretty much the same. At the beginning of each year, you will have to complete a tax return to show your assets and income for the previous year. The income taken into account will be your net income (after deduction of all expenses).

You will complete your tax return the same way you did before.

Feel free to contact us if you need help with your tax return or if you would like to carry out tax simulations.

• Tax return in the canton of Vaud
• Tax return in Geneva
• Tax return in Valais

As far as I’m concerned, I’ll stop here and say Tcho 😉