Although being self-employed brings many benefits, there are potential downsides also. Not only can work dry up and cut off your only source of income, but there are further worries over retirement, tax and insurance – aspects many full-time workers take for granted. If you’re one of the UK’s 4.5 million self-employed workers and worried about how to safeguard your finances, here are a few things to consider.
As a self-employed worker, you’re entitled to a state pension the same way regular employees are. However, automatic enrolment into a workplace pension scheme isn’t a luxury at your disposal. Savings have to be made independently.
Remember, the earlier you start putting money aside, the better. You’ll fall into a routine of regular saving, whilst there’s also more time to benefit from tax relief initiatives. Various pension schemes are available so remember to scout around for the most suitable deal. If you’re interested in finding out more, have a look at our post pension options for the self employed.
As a self-employed worker, you may be entitled to working tax credits to top up your income. The system can help those on low wages come through sticky patches where work is sporadic. However, there is criteria to fulfil and the amount you receive will vary.
To claim, you must work regularly, have up-to-date business records and that show you operate towards a profit. You must be at least 16 years old to qualify, whilst those over 25 must work over 30 hours per week. Further entitlements come to those who have children or are over 60.
A smart way to streamline expenditure is to deduct allowable expenses from running costs. This essentially will reduce your taxable profit, meaning less outlay when completing your self-assessment return.
All sorts of expenses can be claimed including office supplies, travel costs, staff wages, bank charges, utility bills and marketing, amongst others. Knowing your legal entitlements here can offer more confidence when spending throughout the year.
It may sound obvious, but one of the best ways to protect your earnings is to minimise spending wherever possible. Our advice is to maintain a thorough balance sheet outlining all expenditure, no matter how small. Assess which areas can be tightened up, especially if they’re non-taxable.
Examples could be to rent goods rather than buy outright, or shop around for the cheapest energy bills. Likewise, before making a business purchase, check out internet auction websites to unearth possible bargains. Staying financially prudent is crucial for a self-employed worker.
Taking out an insurance policy is perhaps the most efficient way to safeguard your finances. To prepare for financial loss via an accident or illness, income protection insurance will provide cover. Likewise, even consider life insurance so family members are cared for in the event of death.
All of the above measures will depend on your business model and financial situation. In regard to pensions, tax affairs and insurance however, the one constant is that professional accountancy advice should be sought. Doing so will help protect your earnings, a task with greater importance as a self-employed worker. Feel free to get in touch if you’d like to talk to us about your needs.
Why not check out how to save money on your business bank account to see if you could be spending less in that area?