Financial advice for self-employed women

There has been an influx of women who have recently taken the step out of employment and are working for themselves, whether by running a business, freelancing or contracting out.

1.7 million women are now classed as self-employed in the UK, according to the Office for National Statistics, which means women now make up around a third of the five million people who work for themselves.

Historically self-employment has been a predominantly male sector, so this is a seismic change. By working for themselves, there’s the potential for greater numbers of women to circumvent some of the limitations that have tended to accompany working for an employer.

For example, the pay gap, which has the knock-on effect of causing a gender pensions gap in retirement and the difficulties around balancing work with childcare or family responsibilities.

Working for yourself can come with a real sense of freedom. It offers the ability to set your own rates and hours, capitalise on your skills and specialise in a niche that suits you, building a personal brand based around your experience and focusing on clients who you want to work with rather than those your employer chooses.

But there are some specific challenges that women face when opting to be self-employed. Unfortunately, the gender pay gap widens among this demographic, with self-employed men earning 43% more on average than their female counterparts.

This is compared to an average gender pay gap of 15.5% for all employees.

Consequently, an ‘entitlement gap’ can result where freelance women set lower rates for their work than men. This could be rectified by working on self-advocacy and negotiation skills.

Research from IPSE, the organisation for independent workers, also found that self-employed women are more affected by late payment from suppliers. While there’s no excuse for lengthy delays in paying people, part of this could be related to the recent flood of women entering self-employment for the first time.

Below are the three main areas of personal finance that the self-employed grapple with and some solutions on how to tackle them.

Income

Self-employment brings with it busy periods and quieter spells, and it’s far harder to budget or plan ahead when revenue changes month by month. Being your own boss often involves spending the majority of your time managing clients and overheads meaning that your own finances fall to the bottom of the priority list. This is a problem for women, who may have gone freelance and may already have less saved for their future than their male counterparts.

Separate your regular spending needs such as your mortgage and living costs and set up a direct debit to ‘pay yourself’ each month based on an average of what you make. Then focus on longer-term needs such as saving for retirement and building up investments.

What you put aside for these life events can suit your financial situation – it may be that your pension gets a twice-yearly boost after a particular client pays you, or that you can save something for 10 months of the year. It’s a delicate balancing act but vital that you have a plan to turn to.

Advice 

Many self-employed workers employ an accountant to deal with their own tax return and that of their company. While an accountant can work magic with Income and Corporation Tax, often a financial adviser is better equipped to help with savings, pension goals, inheritance issues, investments and insurance ‘protection’ that pays out if you become critically ill or die.

Women often feel they must ‘do it all’ themselves. But outsourcing financial planning, as you would with any other business need, can help lighten the organisational load and show you that you’re not in this alone.

Tax 

Think about the amount that you take as income and consider the most tax-efficient way of doing it.

Typically, paying into a pension from your company will be the best way of maximising your income while minimising your exposure to tax, as you will be taxed on earnings after pension deductions.

Money in a pension cannot be accessed until the age of 55 (57 from 2028), but on the upside you will have control over how much income you withdraw and therefore how much income tax you will be subject to.

However, be aware that you may get back less than the amount you invested. For instance, the value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

*Sharon Bonfield is Advice for Women Marketing Proposition Manager at St James’s Place Wealth Management.

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