Six ways self-employed workers can take care of their money during the cost-of-living crisis

The number of self-employed workers has increased steadily over the last two decades, from 3.2 million in December 2000 to more than 5 million at the beginning of 2020, standing at 4.2 million this year.

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

Whether you’re starting out on your own or thinking of going it alone after years of regular employment, there are a number of important financial decisions to make, but luckily, Norton Finance has put together a six-step guide to help everyone get 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 work income and expenses. This makes life much easier when it comes to self-assessment.


Make sure you set aside enough money each month so you can pay your taxes when they are due. Most business bank accounts now offer budgeting and spending apps to help you stay on track.

emergency fund

Self-employment income can be more unpredictable than a monthly salary, so it’s a good idea to set up an emergency fund to reduce stress in the quieter months. Even if you establish a strong client base before you leave your job, this can cover unexpected costs or quieter periods.

Insurance – for you and your business

If you’re employed, benefits like critical illness coverage and life insurance are easily overlooked and forgotten. However, when you go it alone, the responsibility is yours, so insurance is vital.

Think about liability insurance for business operations and things like critical illness health coverage if you need to take time off work due to unforeseen circumstances.

retirement plan

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

For this reason, establishing 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 large purchases for your business, self-employment loans may be the right solution for you. Interest paid on loans to a business is deductible income expense, provided the loan was made ‘wholly and exclusively’ for business purposes.

Structure your business for taxes

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

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

Being a sole trader (or setting up a business partnership if you share responsibility with a partner) makes it easier to get money out of the business, but it means you’ll likely pay more tax than if you set up your own limited partnership.

You must also make contributions to Social Security.

Incorporating (establishing a limited company) means that you are also separating yourself and your business as legal entities, which is not the case when you are a sole trader. This means your personal assets have more protection if you run into financial difficulties. However, with a limited partnership, it’s harder to get money out of the business, and there’s a lot of paperwork that goes along with it, which means you’ll spend more time on administration or working with an accountant or bookkeeper.

Both structures have their pros and cons, so it’s worth talking 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 must register for VAT if turnover exceeds £85,000.

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

“Loans for self-employed workers can give a business a significant boost, either by providing startup capital or by making it possible to upgrade equipment and grow. However, it is important to remember that if you take out a loan secured on your business or assets, you could be at risk of losing the business if you miss loan payments.”

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

Learn 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 sign up for our twice-weekly newsletter here.

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