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Self-employment: The challenges and how to overcome them

by Madaline Dunn

In the UK, there are over five million self-employed people. This figure has risen dramatically since the 1970s when only a small fraction of the workforce (8%) were self-employed. 

Of course, the trend towards self-employment stems from increased flexibility, greater creative freedom and the ability to be one’s “own boss”. However, that’s not to say that there aren’t challenges that come with the decision to break away from “traditional employment”.

At The Salary Calculator, we’ll guide you through the challenges and potential pitfalls of self-employment and how to overcome them.

This article will explain:

• The additional responsibilities that come with self-employment
• The differences in maternity pay and parental rights 
• How to manage finances 
• The importance of good time management

What are the additional responsibilities of self-employment?

While self-employment can provide workers with a lot more freedom, there are additional responsibilities that individuals must fulfil when they go solo.

One particularly important responsibility is registering as self-employed with HMRC. Following this, self-employed professionals (whether sole trader, limited company or partnership) must complete a yearly Self-Assessment tax return and pay National Insurance (NI) contributions and income tax on profits earned. Additionally, self-employed individuals must still pay income tax and NI contributions even if they make a loss.  For help with calculating how much you owe HMRC, head over here.

Another responsibility for those who are self-employed is setting up a pension pot in preparation for your golden years. While employers must provide eligible employees with a workplace pension scheme and make contributions, self-employed people must choose their own pension plan. That said, only 31% of self-employed individuals are currently saving into a pension!

Most self-employed people opt for personal pensions, and there are few different types. These are:

• Ordinary personal pensions
• Stakeholder pensions
• Self-invested personal pensions 

Some self-employed people are even eligible to use NEST (National Employment Savings Trust).

Of course, if a self-employed professional makes at least 30 years of NI contributions, they are entitled to a state pension. However, this is only £179.60 per week.

Setting up business insurance is also another factor that self-employed individuals should consider. Professional indemnity insurance and public liability insurance are the most common types chosen by self-employed people.

What are the differences between maternity pay and parental rights?

Maternity pay and parental rights work slightly differently for self-employed people. Unfortunately, when self-employed, you aren’t eligible for maternity leave or typical maternity pay.

That said, instead, you may be eligible for Maternity Allowance (MA). Eligibility depends on whether you can fulfil the following criteria in the 66 weeks before your baby’s due date:

• You have been self-employed for at least 26 weeks
• You have earned (at least £30 a week in at least 13 weeks – not necessarily in succession

The total amount that a self-employed mother can earn is £151.20 per week, which is reduced to £27 a week for 39 weeks if there are insufficient Class 2 NI contributions.

Unfortunately, there’s no equivalent for fathers and partners who want to take time off.

Managing finances 

Unfortunately, when it comes to self-employment, there are financial challenges that you will face that other workers do not have to worry about. When you’re self-employed, you are in charge of your finances, so this means you’re responsible for:

• Creating a business budget
• Establishing a business bank account
• Reviewing your finances
• Consulting an accountant (if you feel the need to do so)

It’s also essential to check what you can claim in allowable expenses because this can save you a lot of money. Equally, due to self-employment being a bit more financially precarious than traditional employment, it’s wise to have some contingency money saved up.

By making sure you tick all of the above boxes, you’ll have less chance of facing financial struggles and avoid a lot of potential stress! 

It’s also important to note that it’s not the end of the world if you do come into financial difficulties. For example, if a client or customer fails to pay for the services you’ve delivered, there are steps in place for you to follow.

With late payments, you should immediately send a collection request. If this goes unheard, it’s a good idea to send a “statement of account” to the accounting department. This should include:

• The invoice date and number
• The amount owed
• The work completed for which the owed

Often, late payments are just a mistake, but if no payment arrives within 30 days of the due date, the Late Payment of Commercial Debts Act has your back. This piece of legislation outlines that self-employed workers can claim interest and debt recovery costs set at the Bank of England base rate, plus 8%.

The importance of good time management 

In order to ensure business success, self-employed workers must ensure that they have top-notch time management skills. To achieve this, there are a few helpful hints and tips you should follow.

Schedule your time well. Whether that’s selecting a time to deal with admin, plan contingency periods, or even free time, carefully planning your time will help you avoid stress and multitasking. 

Additionally, while it’s important to have a business email and a personal email, it’s also crucial to have set times to review your emails. Time-tracking can be helpful here, and there are plenty of apps out there that can help you with this.

Another way of achieving good time management is through outsourcing. Delegating tasks that you don’t have the time to complete can boost productivity and give you time to focus on tasks you have prioritised.

 

Tags: Employed and Self Employed, Finances, maternity pay, Pensions, Self Assessment, self employment

The FCA ends price-walking

by Madaline Dunn

The Financial Conduct Authority (FCA) is introducing new rules to tackle “price-walking,” which sees consumers pay more and more for insurance each year despite no increase in risk.

This move follows a super-complaint made by Citizens Advice to the Competition and Markets Authority back in 2018.

But, how exactly does this mean, and how will these changes affect your personal finances?

At The Salary Calculator, we’ll make sure you have all the information you need to discover how these changes will affect you!

This article will explain:

• What price-walking is
• Why the FCA stepped in
• What the changes mean
• How to launch a complaint against an insurance firm
• Responses from across the industry

What is “price-walking”?

Price-walking, otherwise known as the loyalty penalty, refers to the phenomenon where insurance companies charge long-standing customers more to renew their cover while new customers receive cheaper premiums.

According to the FCA, customers lose out on £1.2bn a year due to what Citizens Advice has called a “systematic scam”.

Why has the FCA stepped in?

Back in February 2021, the FCA released its Final Report on general insurance pricing practices. In this report, the regulatory body outlined that general insurance markets must deliver “good outcomes” for all consumers, but that it had found that this is not the case due to price-walking.

One example used to demonstrate this is that while new customers for building insurance pay just £130, customers who have been with the same provider for five or more years pay £238.

Ultimately, it outlined that the practice “distorts competition” while increasing costs for both customers and firms, with higher overall prices for customers. It also highlighted that many insurance firms are not transparent about their price-walking practices.

What do the changes mean?

On 28 May, the FCA published its collection of new pricing practices rules, which primarily placed a prohibition on price-walking for home and motor insurance.

Other changes include giving customers easier methods of cancelling the automatic renewal of their policy and making sure insurance firms do more to “consider how they offer fair value to their customers.

Commenting on the changes, Sheldon Mills from the FCA said: “These measures will put an end to the very high prices paid by many loyal customers. Consumers can still benefit from shopping around or negotiating with their current provider, but won’t be charged more at renewal just for being an existing customer”.

The changes will come into effect from 1 January 2022, and insurance firms will be required to report data to the FCA for improved supervision.

How to launch a complaint against an insurance provider

As a customer, if you become aware that your insurance provider is continuing with a banned practice, you must first complain to the firm directly.

Following this, the firm must respond to your complaint within eight weeks or explain why further investigation is required.

If the firm does not remedy the situation, you can then take your complaint to the Financial Ombudsman Service. This must be done within six months of the final response from the firm. Citizens Advice can also provide a helping hand.

The last resort is taking the firm to court.

How has the industry responded?

The announcement of the rule changes has been welcomed across the board. A spokesman for the Association of British Insurers said that it means firms will no longer be able to offer “unsustainably low-priced deals” to their customers.

Insuretech UK, meanwhile, said that the practice of price-walking has “damaged” customer trust in insurance products and “undermined the credibility” of the industry and voiced support for the changes.

Elsewhere, Rodney Bonnard, UK head of insurance at EY, said that the ban on price-walking points to a “new era of transparency”.

Finally, Matthew Upton, director of policy at Citizens Advice, said that price-walking had been particularly harmful to individuals on low-income and noted that the organisation was “pleased” to see the FCA set the bar “so high”.

Tags: 2021, Citizens Advice, Competition and Markets Authority, FCA, Insurance