Easy As 123: Why the self-employed must take control of their financial future
‘Mony a mickle maks a muckle’ – why the self-employed must take control of their financial future – Laurence Taylor, Founder and Chair, Easy As 123
I was mulling over the wisdom espoused by DIY Investor’s sister site Muckle, translated loosely from the Scotch as ‘mony a muckle makes a mickle’ (I’d be very disappointed if you had to Google what a muckle or a mickle is…). Its mission is to change peoples’ attitudes towards pensions, savings, and investments, urging them to put aside little and often.
I recently met a self-employed client and urged him to do something little and often a propos his bookkeeping, so that we could keep him up-to-date and give him vital real-time information on his estimated tax bill, how to smooth his income over difficult months, and who owed him what.
I completely empathised with him; it is so difficult to do it regularly – we’re tired at the end of a hard-working day or week, and lack the skills or confidence to feel we’re doing it properly.
I also recognised his view, shared by many, that: We’ve always just about managed to get our Tax Return in on the 31st January. And it’s only a £100 fine once a year if we don’t. As to our personal PS&I, we’re not going to retire for years, and we’ll cope with the odd rainy day. Nothing bad’s going to happen, is it? Sounds a bit like our wise elders negotiating Brexit, n’est-ce pas?
Unfortunately, something bad is going to happen, soon; HMRC, whilst dealing with Brexit and extreme tax avoidance, is going ahead with Making Tax Digital, introducing quarterly reporting for everyone under Self-Assessment (the self-employed, small businesses, private landlords). For starters this could mean 4 x £100 fines per year plus interest – and a winding up order if you owe HMRC £750.
‘Unfortunately, something bad is going to happen, soon’
Fortunately, the move to digital and away from cash and cheques is making things much easier. We can be paid once a month by transfer, no more outstanding cheques skewing our balance, or irritatingly petty cash. We receive invoices and receipts by email or can retrieve them online; apps allow us to scan paperwork into the Cloud and swipe to sweep change into a savings or investment account.
If we can get more real-time then we can deal with the downside and benefit from the upside; accountants and financial advisors can see exactly where we are rather than guessing from months-old accounts, and we can send up-to-date figures as good as payslips to bank managers and finance providers rather than cobbling something together.
This will also help to build trust – something that has historically been so lacking between the self-employed and HMRC & financial institutions; once we have that, here’s hoping that they play fairer with us.
The sad truth is, people rarely change their behaviour until they are really forced to – which is often when something bad happens. We, the self-employed, face many things that wait around every corner with a sock full of wet sand – we don’t put aside for holidays, sickness, parental leave, carer’s leave, and current statistics show that we very rarely make any note-worthy retirement provision.
So, for all elements of personal finance we cannot bury our heads in the sand and let things build up – resorting to making a massive effort that may be too late. Like relationships, it’s better to get into good habits, little and often, than try to get away with a grand heroic gesture. As a man, that is hard-won wisdom, I can tell you!