Self-Employed Women: You Work For Yourself But You’re Not Alone

Looking after your finances can seem daunting when you’re self-employed, but you don’t have to go it alone. Taxes, pensions and cash flow are easier to manage than you think.

Rising numbers of women are working for themselves, whether by running a business, freelancing or contracting out.

There are now 1.7 million women classed as self-employed in the UK, according to the Office for National Statistics1, which means women now make up around a third of the five million people who work for themselves3.

This is a seismic change, as historically self-employment has been a predominantly male sector. 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.

These include the pay gap, for example, 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.

Being your own boss 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 being self-employed as a woman also comes with specific challenges. Unfortunately, the gender pay gap widens among this demographic, with self-employed men earning 43% more on average than their female counterparts4.

This is compared to an average gender pay gap of 15.5% for all employees5. This may point to an ‘entitlement gap’ where freelance women set lower rates for their work than men, which could be tackled by women working on self-advocacy and negotiation skills.

Meanwhile, research from IPSE, the organisation for independent workers, found that self-employed women are more affected by late payment from suppliers6. 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, explains ways to help you succeed in the three main areas of personal finance that the self-employed grapple with.

Income

Being self-employed often means having busy periods and quieter spells, and it’s far harder to budget or plan ahead when revenue changes month by month.

Meanwhile, being your own boss often involves spending so much time managing clients and overheads that your own finances fall to the bottom of the priority list. This is a problem for women, who may have gone freelance having less saved for their future than their male counterparts.

Have a game plan for 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 planning for retirement, building up investments, the potential for a period of maternity leave or childcare costs if you decided to start a family.

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

Advice

Most 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 goals, pensions, 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

Don’t just think about the amount that you take as income – also 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.

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

If you would like help with tax planning and building a financial plan for yourself and your business, speak to us today.

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. You may get back less than the amount invested.

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

1 Coronavirus and self-employment in the UK, Office for National Statistics, April 2020
2 The opportunities and challenges of being a self-employed mother, IPSE, August 2020
3 Coronavirus and self-employment in the UK, Office for National Statistics, April 2020
4 Men earn 43 per cent more than women in self-employment, IPSE research reveals, IPSE, March 2020
5 Gender pay gap in the UK: 2020, Office for National Statistics, November 2020
6 The cost of COVID: How the pandemic is affecting the self-employed, IPSE, 2020

Sovereign Wealth Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. Sovereign Wealth is a limited company registered in England and Wales, Number 07115386. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.