Andy James, advice policy manager at financial advisors Towry, on how those who are self-employed can help plan for a more secure financial future.

1. Before considering making any investments, review your borrowing. With investment returns relatively low at present, you will normally be better off paying down expensive debt before putting money away for the future. This will allow your business to be more profitable in the future and you can look to save then.

Whilst there are obviously investments offering a wide range of potential returns, you will probably find it difficult to get returns much above 6% without taking undue risks.

Many loan rates are going to be well above this rate of return and certainly credit cards and some other forms of unsecured debt can run at rates in excess of 15%. So basically it would be a much better return for any spare money you have to use this to pay off your debts.

Once you have paid off these debts you will not have to make the monthly repayments and can then use this extra money that is freed up to invest for your future.

2. Use your pension allowances. Payments to pensions attract tax relief and are therefore highly efficient and will reduce your overall tax bill.

If you pay tax at the highest rate of 50 per cent, any pension contributions this year will be relieved at this level. With the additional rate reducing to 45 per cent in the next tax year you will be better off getting the tax relief now, so act quickly.

If you are a basic rate taxpayer you get the tax relief at source. A payment of £80 into your pension will be grossed up to £100 which gives you an allowance for 20% tax.

This is an immediate 25% return on your net investment. If you pay tax at higher rates you can claim back the extra from HMRC via your tax returns.

So, for instance, if you pay tax at 40% you can claim an additional £20 back on the £100 gross pension payment meaning that the £100 payment will only have cost you £60. This is then a 66% return on your net investment which is a very valuable benefit.

3. Consider using your ISA allowance. ISAs do not attract tax relief on contributions but they do offer tax efficient growth and tax free withdrawals.

They also have the advantage over pensions of not tying your money up for the long term. Whilst any ISA money invested in anything other than cash should be considered for the longer term, it can be accessed to invest in the business if required.

Unlike a pension, which only allows you to take 25% of the total amount built up as a tax free sum (the rest being taxed as if it was income) ISA withdrawals are not taxed. As an example, when you retire and take money out of your pension as income it will be taxed.

So, if you pay basic rate tax, £100 withdrawn will have tax deducted and you will be left with £80. However, the same £100 taken from the ISA will give you the full £100 in your pocket or looking at it another way you would only need to take £80 out of the ISA to get the same benefit as the £100 taken from the pension.

4. If you currently have investments, have you considered whether you have capital gains? If you do, it may be worthwhile considering realising sufficient investment to use up your annual capital gains allowance. If the annual allowance is not used, it is lost, and as it offers tax free returns it is a highly valuable benefit which is often overlooked.

Currently the capital gains allowance is £10,600. If investments have made gains you can use the allowance to withdraw money without paying any tax.

If you have gains building up in your investments and don’t use the allowance regularly you can end up with a large capital gains tax bill if you decide to cash in the investments.

For instance, if you invested £100,000 and it doubled in value over the years and is now worth £200,000 and you then cashed it all in, you would have a £100,000 gain.

You would have your annual allowance of £10,600 but would have tax to pay on the other £89,400. Depending on your income the tax rate could be as much as 28% on the total gain and you would therefore have to pay over £25,000 in tax.

Using your allowances over the years could have reduced or even wiped out this tax charge.

5. Finally, make sure you regularly review what investments you have. Things rarely stay the same. Your objectives may change, business needs change, investment returns change, tax rules change and when they do, what you have may need to change as well. Just because something was correct when you did it doesn’t mean that it will always be the right solution for you.

For example, you may have invested your money with the intention of leaving it invested until you retire. When you invested it that was say 10 years ahead. You may decide to retire sooner or later and this therefore changes the term of the investment, meaning that the investment may no longer be suitable.

Certainly, as you get nearer retirement it is often a good idea to move at least some of your investments into more liquid funds so that you can get at them at the right time, and hopefully not be caught out by any large fluctuations in market prices just before you retire.