Blog by Ruth Power, Director of FMB. Financial Management Bureau Ltd is authorised and regulated by the Financial Conduct Authority and the registered address is Shenstone House, Helsington, Kendal, Cumbria LA8 8AA. To find out more about our work with FMB visit the ICS Money page.
Being self–employed can be a wonderful experience. You can work flexibly, be your own boss, follow your own instincts and use your skills to the full. When it works really well you may also make more money than you could being employed and get full credit for your ideas.
You also need to remember that sometimes the reason you earn more is that the full responsibility for tax and employment benefits lies with you.
The benefits employees take for granted are often in addition to state benefits such as holiday and sick leave and potentially additional benefits such as death in service insurance and Private Medical Insurance. Following Auto Enrolment of pensions, all employees receive contributions from their employer in addition to their own contributions. When you go it alone you forgo many of these benefits
So with the freedom comes additional risk and responsibility, there is always a trade-off. Here are our top tips to ensure you don’t leave yourself short.
1. If you can’t afford anything else at least make sure you have some form of income protection in case you can’t work. If you have a family and the mortgage must be paid it’s unlikely state benefits will be enough
2. Make sure you keep up with your NI contributions. If there are any gaps it may be possible to fill them if they are recent enough. Do a state pension forecast NOW and make sure you are eligible. By return on investment the State Pension is excellent.
3. Don’t rely on selling your business as your pension, this rarely pans out and creates uncertainty and a lack of control. Much better to make investments as you go along. Pensions are an excellent tax efficient way to save and can help keep your tax bills down as well.
4. Ask your accountant if you could be doing more. There may be opportunities to save money you might miss.
5. If your business takes off and you are lucky enough to grow to employ more staff, don’t forget about the hidden costs of all the benefits I mentioned in the first paragraph. NI, Pensions, holiday and sick pay will all add to the cost.