Six ways self-employed people can look after their money during cost of living crisis

The number of self-employed people has steadily increased over the last two decades, climbing from 3.2 million in December 2000 to over 5 million at the start of 2020, settling at 4.2 million this year.

New research by independent finance broker, Norton Finance, has recorded a 20 per cent growth in self-employment advisory services over the last two years since the coronavirus pandemic began.

If you start working for yourself, or are thinking about going it alone after years in regular employment, there is a set of important financial decisions to be made, but luckily, Norton Finance has prepared a six-step guide to help everyone through it.

Planning your finances for self-employment

bank accounts

To keep work and personal finances separate, set up a business bank account to manage income and work expenses. This makes life far easier when it comes to self-assessment.


Be sure to set aside enough money each month so that you can pay your taxes when they’re due. Most business bank accounts now offer budgeting and expenses apps to help keep you on track.

emergency fund

Income from self-employment can be more unpredictable than a monthly salary, so setting up an emergency fund to reduce stress in quieter months is advisable. Even if you establish a solid base of clients before leaving your job, this can cover unexpected costs or quieter periods.

Insurance – for yourself and your business

If you’re employed, benefits like critical illness cover and life insurance are easily overlooked and forgotten. However, when you’re going it alone, the buck stops with you, so insurance is vital.

Think about liability insurance for business operations, and items like health cover for critical illness if you need to stop working due to unforeseen circumstances.

plan for retirement

Even if you’re setting out on a career in your dream job, at some point you will want to stop and enjoy the life you’ve built for yourself.

For this reason, setting up a personal pension early and contributing to it consistently is key to reducing financial stress later in life.


Whether your business is new or established, if you need to make big purchases for your business, self-employed loans may be the right solution for you. Interest paid on loans to a business is a deductible revenue expense, provided that the loan was made ‘wholly and exclusively’ for business purposes.

Structure your business for tax

Once you’ve decided to take the step into self-employment, it’s time to consider how you’re going to structure your business for tax purposes.

When you’re working for yourself, HM Revenue and Customs (HMRC) class you as a sole trader, however this might not be the best way for you to classify your business for legal and tax purposes.

Being a sole trader (or setting up a business partnership if sharing responsibility with a partner) makes it easier to take money out of the business but does mean that you’re likely to pay more tax than if you set up your own limited company.

You’ll also need to make National Insurance contributions.

Incorporating, (setting up a limited company), means you’re also separating yourself and your business as legal entities, which isn’t the case when you’re a sole trader. This means your personal assets have more protection if you encounter financial difficulty. However, with a limited company, it’s more difficult to take money out of the business, and there’s a lot of paperwork that goes with it, meaning more of your time spent on admin, or working with an accountant or bookkeeper.

Both structures have their pros and cons, so it’s worth speaking to an accountant or financial advisor about what would work best for your situation and business. It’s also worth bearing in mind that both sole traders and limited companies are required to register for VAT if turnover exceeds £85,000.

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A spokesperson for Norton Finance said: “Inquiries from self-employed customers have increased by one fifth following the pandemic. We expect this trend to continue as the cost-of-living crisis worsens throughout this year.

“Self-employed loans can provide a considerable boost to a business, whether it’s providing capital at the start or making it possible to upgrade equipment and grow. However, it’s important to remember that if you take out a loan secured against your business or assets, you could risk losing the business if you don’t make the loan repayments.”

To check whether you qualify as a sole trader visit the GOV.UK website here.

Find out more about Norton Finance here

To keep up to date with the cost of living crisis, join our Money Saving Scotland Facebook group here, follow Record Money on Twitter hereor subscribe to our twice weekly newsletter here.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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