This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Self-employed workers form an important part of the UK economy. In December 2019, about 5m people were registered as self-employed in the UK – up from 3.2m in 2000. Overall, this makes up about 15.3% of the country’s workforce – with freelancers alone contributing £300bn a year to the economy. Yet despite their contribution self-employed people have – overall – faced a harsher year in 2020 compared to many of those employed in the public or private sector. According to one study, employees have received about £5,000 more, on average, from the government in salary subsidies since the UK entered lockdown in March.
It’s been a difficult year for everyone, yet self-employed people tend to have fewer safety nets in place to deal with crises like the 2020 pandemic. There is no redundancy package if you can no longer be employed, and you do not have an HR team and similar resources to guide you when answers elude you. In this guide, therefore, our team at Elmfield Financial Planning in Padiham, Burnley, Lancashire offers some thoughts on financial planning for the self-employed as 2020 draws to a close.
We hope you find this content useful. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
An overview of the latest available support
It’s important to start with a survey of the government support that’s winding down in autumn 2020, and what kind of support will be available in the coming months for self-employed people. Initially, the Chancellor’s budget in March offered similar support to employed people. In short, the government would cover 80% of wages/profits up to £2,500 per month. This scheme has run until October 2020 and has now been replaced.
Instead, from November self-employed workers will be entitled to claim for a 3-month grant which covers 40% of “usual” earnings. This will be capped at £3,750. Whilst the grant will certainly be welcomed by many, it is less generous than the Job Support Scheme where employees could be eligible for up to 74% of their regular pay. This support is available to employed people if they work 20% of their normal hours. Bear in mind, however, that the 3-month grant is currently not available to freelancers paid via a client company (through PAYE), the newly self-employed and company directors.
Financial planning for hard times
Everyone will be in a different place when reading this. Some may have had an excellent past few years as a self-employed person, with significant savings for a safety net in 2020 and work still coming in. Others may have had no work for months, with scant reserves and looming bills to be paid. Then there will be everyone in between. Yet there are some financials strategies that will be helpful for all to consider, here:
- Review your debt plan. Carrying high-interest debt from credit cards and other personal loans is rarely wise. Ideally, it is prudent to clear such debts if at all possible since they can add a large burden to your monthly outgoings. Yet if this is currently not realistic, it may be a good time to consider refinancing your debt at a lower rate. Remember that, at the time of writing, interest rates are currently low. As such, researching some lower-rate credit cards could save on your monthly interest payments – allowing you to pay down the debt at a faster rate.
- Review your expenses. Many self-employed people need to make certain costs as part of their job. A freelance graphic designer, for example, will probably require Photoshop or a similar application to complete projects. Yet it is possible to cut monthly expenses by hundreds of pounds with just a few hours of cost-cutting unnecessary items. Reviewing your subscriptions is a good place to start (e.g. unneeded/unused software). Yet higher value “one-off costs” can also be wise areas to optimise. For instance, do you need a new laptop worth £1,000+ or could you find something that meets your needs for £300? Could you put off the purchase altogether for just a bit longer?
- Check your protection profile. One area where you should certainly not cut corners is insurance. After all, the last thing you need right now is an unaffordable customer claim on your hands. Yet it is possible that you might be overpaying for suboptimal policies at the moment. Consider reviewing these when you get a quiet moment to see if you can improve your business protection whilst possibly also cutting costs.
- Optimise your tax position. Did you know that there might be certain expenses which can be off-set against your tax bill, now that you’re working from home? Since these eat into your much-needed profits, it’s worth giving these a careful “once over” to make sure you are not paying more than you need to during these challenging times.
- Don’t forget the future. Whilst the present might feel most pressing for the self-employed during this pandemic, it’s important not to neglect your long-term financial goals such as future retirement. Think carefully before cutting your pension contributions in an attempt to ease short-term financial strain.
Invitation
If you are interested in starting a conversation about your own financial plan or protection then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
