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Published on 20th August 2018

Best financial products for the gig economy

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Self-employment has gone mainstream, with around 15% of the workforce choosing freelancing, contracting or the gig economy over the security of a permanent employment. Yet, despite its growing popularity, financial services companies have been slow to cater to the needs of the 4.8m self-employed people across the UK, historically considering them ‘higher risk’ than salaried employees.

For years, financial institutions have made things more difficult for self-employed people, setting them tougher criteria or offering worse deals than they do to those with ‘normal’ jobs. When, in reality, freelancers and contractors often earn more than payroll-based employees, and are invariably more responsible with their money, due to years managing the expenses and tax admin that come with the lifestyle.

But as the self-employed army continues to grow, we’re seeing more financial companies – new and old – wake up to the specialist needs of this market. There’s still some way to go until managing your finances is as easy as it is for employees. But with these products and services, things are starting to move in the right direction:

Bank accounts

Fintech start-up, Coconut, recently launched the first ever dedicated current account for freelancers and self-employed people. Designed to streamline a lot of the admin involved in working for yourself, the account will automatically calculate your taxes, track your business expenses and send notifications when you receive client payments.

It’s currently only available to those who operate as sole traders and have an iPhone, however Coconut has plans to launch a limited company account at some point this year, as well as an Android version. Also in the pipeline is a Grow account, which offers additional functionality, such as receipt capture, VAT management and shared access with your accountant, for a charge of £4.94 per month. So, it could soon make those admin headaches a thing of the past.

Life and critical illness cover

Being self-employed means foregoing the ‘comfort blanket’ benefits you might take for granted with a big employer, such as sick pay or life insurance. That’s why organising your own equivalent benefits is a valuable investment, particularly if you have a family. But unfortunately, insurers haven’t always made it easy for freelancers, contractors and entrepreneurs, whether that’s forcing you to fit your portfolio career into a pre-defined box or simply setting your premiums higher because you’re considered ‘higher risk’.

Thankfully there are now providers who have built their cover around the self-employed to ensure you’re accurately protected and don’t get charged more than you should. One new provider on the market is Sherpa, which offers life, critical Illness and accident protection designed around the idiosyncrasies of the self-employed lifestyle. One benefit is that you can change or cancel your protection as you need to, giving you more flexibility than with traditional products.

Private Medical Insurance (PMI)

PMI, sometimes called health insurance, is considered a necessity by many self-employed professionals, enabling you to get treated more quickly, avoiding time off and loss of earnings, if you become sick or injured. However, it can prove costly when you’re paying for it yourself, so you should look out for flexible products that you can tailor to your specific needs. Good options are AXA PPP, which has a product specifically aimed at the self-employed and sole traders, and Western Provident Association, which offers discounted rates to freelancers and contractors, if you can prove your tax status.

Business insurance

Most self-employed individuals also need some business insurance, whether that’s professional indemnity, public liability, car insurance or contents cover for your belongings. Yet, it’s fair to say that traditional commercial brokers weren’t set up for the needs of this market, with inflexible, expensive policies and a cumbersome customer experience.

However, that is all changing, with a handful of business providers out there specialising in the self-employed. For example, Dinghy, which launched last year, says you can buy its policies within three minutes online and then turn your protection on and off as you need to. They also offer a Freelance Assist service, which can help you chase clients for unpaid invoices, provide expert tax advice and pay you for jury duty.

Digital Risks is another flexible option, which can also be bought online and changed or cancelled on a monthly basis. Specialising in cover for the digital industries, it’s ideal for IT contractors, with policies built around the technical and cyber risks they face.

There are also providers out there for gig economy delivery drivers, such as Zego, which allows you to switch your cover off when you’re not working, to minimise the cost.

Mortgages

Mortgages are a particular bugbear for self-employed people. Whereas employees can apply for a mortgage based on their salary, even if they’ve only been in the job for a week, freelancers and sole traders usually have to show two years of accounts to get the same deals. However, the rise in self-employment means many lenders are now adjusting their lending criteria, to make it a little bit easier for this growing segment of the market.

For example, Ipswich Building Society has a special self-employed range, for which it requires one year’s worth of accounts, or 18 months’ employment history for zero-hours workers. It will lend up to 90pc of the property value at 2.99%. Newcastle Building Society also has a self-employed range requiring only one year of accounts for those with a 25pc deposit. A two-year fix costs 2.2pc with a £999 fee or 2.4pc without.

And they’re not alone, with many other big lenders, such as HalifaxBarclays and Clydesdale also lowering or softening the two-year hurdle, saying they will now consider applications backed by just one year of accounts.

The future

It’s still early days for the self-employed market, as financial services companies strive to catch up with the rapid evolution of the gig economy. But with more start-ups now catering to this increasingly influential customer group, it shouldn’t be long before more big players get in on the act, and hard-working self-employed professionals receive equal treatment to the 9-5ers. 

Are you self employed? Share your experience and help others like you find the right provider.

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