From reviewing your rates to paying tax on time, here’s how you can mitigate the impact of inflation
Inflation has become an ever-present problem for many of us, and just one more that the UK’s 4.3m self-employed workers must contend with.
While the headline rate has fallen slightly recently, inflation remains high. As of late August, it’s 6.8%
, which is more than three times the government target. As a result, you might be feeling the squeeze.
The nature of self-employment – especially having a variable income – can make high inflation hit particularly hard. There are a few ways that you can counteract its effects, though.
Here are some things to consider that might help offset inflation’s impact.
Increasing your prices
Inflation has been a major cause of concern for many freelancers in the last 18 months. Research from IPSE (the Association of Independent Workers and the Self-Employed) found that half of freelancers believed day rates wouldn’t keep up with inflation.
Adjusting your rates is one way to go. It may not be popular with every client, but some will understand. You could opt for a flat-rate increase of 6.8%, bringing your rates in line with inflation.
If that’s out of the question, it might be worth rescoping any projects you’re working on. This will give you an opportunity to find a balance that works for you and your clients in terms of deliverables and price.
- Keeping one eye on the horizon
Inflation might be suppressing your earnings for now, but it’s important to look to the future, too. Where possible, continue to put away a percentage of your earnings for all of the different cost commitments you can anticipate.
You’re probably already thinking ahead to sorting out the taxes that you’ll need to pay at the end of the tax year – and you’ll want to do that on time, as we’ll outline below.
But it’s also a good idea to try and save some money for everyday emergencies or expenses, as well as your longer-term financial security.
- Protecting your financial interests
Insurance offers a vital safety net, protecting you and your business from the financial risks that come with being self-employed – whether that’s covering the cost of a legal dispute, professional representation during a tax enquiry or for a claim raised against you pertaining to loss sustained as a result of services provided.
If you have insurance in place, now’s the time to review your requirements and ensure that your policies are comprehensive and competitively priced.
Not sure which business insurance policy is right for you? Feeling overwhelmed by the options and just need it explained plain and simple? Take a look at our quick and easy Insurance Finder.
- Pay your taxes on time
When inflation rises, so do interest rates. As it happens, this is good news for HMRC. The taxman charges interest on fines for late submissions of tax paperwork – like the Self Assessment – and on tax bills.
The sting will be worse this year, and HMRC has recently changed the way it calculates interest. Interest on late payments is now charged at 7.75%, and interest on repayments is 4.25%. In short, HMRC charges more in interest than it pays out.
The best way to avoid interest and a fine is to submit your tax return and pay your bill on time. If you don’t, you’re just handing extra money over to HMRC – money that you could make better use of in times like these.
- Know your rights when it comes to late payments
Your clients may have a great track record of paying you on time, every time. But for those that don’t, you have legal rights to charge interest on late payments (just like HMRC).
Statutory payment terms are 30 days unless you and your client agree otherwise in a contract. Anything paid after that is seen as late. The Small Business Commissioner has a calculator to help you work out what to charge for late payments, including interest and compensation. This is based on both the invoice value and how late the payment is.
You may consider this a last resort, in the interests of keeping things amicable. After all, it’s likely you’ve spent a lot of time building up trust and productive working relationships.
To recap, while everybody seems to be feeling the pinch right now, by thinking and planning ahead, there are plenty of ways to minimise the impact of unusually high inflation.