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Weave your own safety net
With so little help available from the state, all self-employed workers should consider taking out one of two types of insurance, says David Prosser.
Chris Martin: striking a chord with the self-employed
(Image credit: 2017 Getty Images)
Pop star Chris Martin wants the government to do more to support self-employed workers who become parents. The Coldplay lead singer told the i newspaper that he is backing a campaign to extend shared parental leave rules to the self-employed after watching a string of crew members forced to give up their jobs because the current system of maternity and paternity benefits doesn't suit them.
Currently, working mothers can share some of their statutory maternity leave typically up to 52 weeks with the fathers of their children. But these rules don't cover the self-employed. And while Martin's call will strike a chord with many parents, it's not the only way in which the benefits system discriminates against the self-employed. While self-employed mothers can claim statutory maternity allowance worth up to £141 a week if you have made sufficient national-insurance contributions there is no statutory paternity leave or pay for self-employed fathers.
The self-employed also have no right to statutory sick pay and instead have to rely on employment support allowance (ESA). This is a limited benefit with strict eligibility criteria, worth no more than £110 a week for most people. You won't normally be able to claim if you're capable of paid work (even if your health prevents you from running your business), and if you have over £6,000 in savings you may get less, or nothing at all.
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The only other help available is support for mortgage interest, which some ESA claimants can claim, but only after 39 weeks out of work and only on interest charges of mortgages of £200,000 or less. Even this is being dropped in April; thereafter any support will be in the form of a loan that eventually has to be repaid.
With so little help available from the state, all self-employed workers should consider taking out one of two types of insurance. Critical illness cover pays a cash lump sum if you are diagnosed with one of a specified list of serious illnesses, or you suffer severe disability caused by an accident. Permanent health insurance, sometimes known as income protection, will pay a replacement income for as long as you're unable to work because of ill-health or an accident potentially even until you're old enough to claim retirement benefits.
Research shows that as few as one in ten of the self-employed has taken out either type of insurance. It can be expensive and the small print matters. For example, some policies will pay out if you can't do your current work, while others only pay out if you can't do any work at all. Even so, both types of insurance provide valuable protection to workers who get little other help; consider taking financial advice on the best option for you.
Let the state pay for maternity leave
Small-business owners sometimes worry about the cost of paying mothers who take time off after having a child, but it's important to remember that you should be able to claim most, or all, of this money back.
The government requires employers to offer 39 weeks of statutory maternity pay (SMP) to new mothers although you can be more generous if you want. SMP is payable at 90% of average weekly earnings before tax for the first six weeks, and then the lower of this sum or £139.58 a week for the next 33 weeks. Mothers are entitled to take a further 13 weeks of maternity leave once the 39 weeks have finished, but these don't have to be paid.
Crucially, however, SMP can be claimed back from HM Revenue & Customs. Small businesses that paid less than £45,000 in class one national-insurance contributions over the last complete tax year can claim every penny paid out in SMP plus an additional 3% on top. And even larger employers can claim 92% back of the SMP they pay.
So make sure that you're claiming what you're entitled to if your small business uses payroll software it may even be able to calculate your claim and produce the paperwork that HMRC requires in order for you to have the money refunded.
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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
