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 from its peak in 2022, it remains higher than many of us would like. As of January 2025, it’s 3% - 1% higher than the Bank of England’s 2% target.
You might ask, “If inflation has fallen so sharply, why isn’t anything any cheaper?” but it’s important to note that inflation is a measure of the rate of price increases, not actual prices. Prices have only stabilised at a higher level after the big increases of 2021-22.
So, unfortunately, that £3 pack of margarine that jumped to £3.33 in 2022 and then £3.43 in 2023 isn’t going back down to £3 — it’s just not rising as fast anymore.
Which begs the question: how can the self-employed cope in a high-cost world?
From reviewing your rates to managing your tax bill, here’s how you can lessen the impact of rising costs on your business.
Inflation remains a challenge for many households and businesses. For the UK's 4.3 million self-employed workers, dealing with higher costs is still very much part of everyday life, this includes prices on fuel and utilities to software subscriptions and professional services.
Against this backdrop, many self-employed people are asking the same question: how do you protect your income and profitability when the cost of running a business continues to rise?
Research from the Qdos self-employed 2024 survey found that – for 62% of independent workers – income insecurity remained their primary challenge. And with companies having to contend with rises in the national minimum wage and employers’ NICs, business budgets are increasingly stretched.
The temptation, of course, is to lower your prices to remain competitive. But undercharging can be a race to the bottom - one that ultimately undervalues your work and makes it harder to sustain your business. Instead, consider adjusting your rates to reflect rising costs, just as larger businesses do.
If you’re worried about losing clients, focus on communicating the value you provide. Highlight your expertise, reliability, and the quality of your work. Many clients understand that prices naturally rise over time, especially in a high-inflation environment.
Another approach is to offer tiered pricing. This gives clients flexibility while ensuring you’re fairly compensated. For instance, you could offer a basic package at a lower rate while keeping premium services at a higher price point. This allows cost-sensitive clients to stay while ensuring your most valuable work is properly rewarded.
Inflation might be suppressing your earnings, but it’s important to look to the future. 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.
How much should you be putting away? While the exact percentage depends on your income, expenses, and lifestyle, a general rule of thumb for freelancers and small business owners is:
It’s never nice to think about, but as a self-employed professional you have to ask yourself: what would happen if you fell ill and were unable to work? What if a client claims you made a mistake that cost them business, and decided to sue? That’s where insurance can be a life saver. While it might seem like an extra expense, it’s an investment in your financial stability. A single claim or unexpected event could be devastating without it — so consider it a key part of your business strategy. For small business owners and freelancers, Income Protection Insurance, Professional Indemnity Insurance and Public Liability Insurance are among the most important types of policies to consider.
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 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.
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 some of ways to minimise the impact of unusually high inflation.
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