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How to become your own boss
A cautionary tale from the BBC – freelancers should make sure their tax affairs are in order, says Ruth Jackson.
(Image credit: WARNING: Use of this copyright image is subject to the terms of use of BBC Pictures' Digital Picture Service (BBC Pictures) as set out at www.bbcpictures.co.uk. In particular, this image may)
As growing numbers of us go freelance, there are also more and more stories in the press of people falling foul of the taxman. For example, more than 100 BBC staff now face huge tax bills after years of working for the corporation as freelance contractors rather than direct employees.
The issue faced by individuals including BBC Radio presenters Kirsty Lang and Liz Kershaw stems from the fact that HMRC argues that they should have been classed as permanent staff rather than freelancers, and so have underpaid National Insurance contributions (NICs). The tax office now wants that money back, even though many of the staff claim that the BBC pressured them into the arrangement.
Your own career may not be quite as high profile. But whether you have already made the jump, or are considering going freelance, it's a salutary reminder to be aware of your financial and legal obligations.
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
First of all, can you afford to go self-employed? While there are many benefits to being your own boss, there are obvious drawbacks there's no paid holiday or sick leave; and if you can't find work you aren't going to get paid. So you need some cash in the bank before you start. You should also consider income-protection insurance, which will pay a regular income if you are unable to work due to illness; and critical illness cover, which pays a lump sum if you can't work due to a long-term sickness.
Then, you need to decide whether you will operate as a sole trader or set up a limited company. This will largely be dictated by the size of your income and the nature of your business. Being a sole trader comes with fewer regulations, and may be the easier route for those earning below the VAT threshold (currently £85,000). However, being a limited company limits your losses to your company, and you pay corporation tax, not income tax.
Next, think about your family. One big drawback of being self-employed is the issue of parental leave. There is no shared parental leave for the self-employed. Instead, mothers get a "maternity allowance" of £140.98 a week for 39 weeks. It's not much, and to get it you have to have paid NICs for at least 13 of the 66 weeks prior to your baby's due date.
Also, consider how you are going to pay your taxes. The simplest option is to set up a separate savings account just for your taxes. As soon as you get paid by a client, move a percentage (based on your expected tax rate) into the account, and leave it there don't dip in when you need extra cash at the end of the month.
Once you've got your tax account set up, consider how you are going to keep track of your income and expenses so that you can fill out your tax return. The simplest way to do so is to keep a monthly spreadsheet listing the work you've done and how much you are being paid for it, and your business expenses. (Make sure to keep your business receipts too.)
Finally, you may be just setting up your business, and hoping it is going to make you a millionaire, but you also need to consider what will happen when you stop working. Around 45% of self-employed people aged 35-55 have no pension savings, according to the Office for National Statistics. If you don't save into a private pension when you are self-employed, then you may struggle to ever be able to retire, with only the state pension and your savings to support you.
Set up a private pension and make regular payments into it. You'll get the same immediate basic-rate tax relief as anyone in regular employment. Plus, if you earn more than £45,000, you'll be able to claim the extra tax relief back through your tax return.
Pocket money... dads should take more time off
First Direct has become the latest bank to offer voice-activated payments to customers using Apple's virtual assistant Siri on their iPhones, reports Adam Williams for Moneywise. Customers can now make payments to existing payees or mobile contacts simply by asking Siri, with no need to enter a password.
"Users can make a payment with a voice command such as Siri, pay Gary £15 with First Direct', and then confirming the transaction by using the fingerprint scanner or face ID tool," says Williams. Users can make as many payments as they like, up to a daily limit of £350, and money should be transferred immediately.
The interest rates available on "notice accounts" are at their highest levels since 2016, reports Amelia Murray in The Daily Telegraph. Increased competition between providers of these accounts (which require you to give notice of withdrawal in advance) means rates have risen by up to 30% over the past year.
Secure Trust Bank's 120-day notice account, which paid 1.19% in March 2017, now offers 1.55%, data from Moneyfacts shows. The same bank's 180-day notice account pays 1.65%, the highest rate on offer since June 2016.
If you're tempted by these rates, keep in mind that that these accounts should only be used for cash you genuinely won't need immediate access to some accounts require up to six months' notice for withdrawals. And note that the interest rate isn't fixed, so the provider could feasibly change it at any time.
As of its three-year anniversary, take-up of the shared parental leave scheme has been "woeful", with as few as 2% of the 285,000 eligible couples taking advantage each year, reports the Department for Business, Energy & Industrial Strategy. One reason few fathers are sharing leave is that many employers pay more than the statutory minimum for maternity leave, but only the statutory for shared leave, "so it does not make financial sense for families to swap maternity pay for a lower income," says Ruth Emery in The Sunday Times. The government is keen to improve the uptake, which it sees as key to reducing the UK's gender pay gap.
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Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.
