Self-employed? How much should you put aside for your tax?

how much should you put aside for your taxhow much should you put aside for your tax

OK, so as much as your work is fun, you still have to do some of the boring stuff.  Admin, bookkeeping and tax!  Smething we all love to hate.

So as we’re coming up to the final quarter of the year, here are a couple of reminders for you.

File your self-assessment online, and on time

Firstly, those lovely young men and women over at HMRC don’t want you to forget to file your self-assessment online.  You’ll need to be registered to file online, full details here.

Put something aside for your tax bill

Getting into the habit of putting something aside for the tax man will help you to plan ahead and prevent nasty surprises.

But how much should you put aside?

A general rule of thumb is to keep back a third of what you earn.  Tuck it away, ignore it and regard it as “the taxman’s”.  In other words, not yours!

It’s only a general rule, as there are a number of other factors to keep in mind:

  1. Everyone has a personal allowance, i.e., an amount of tax-free income. Click here for the current year’s personal allowance rates (opens in a new window, Gov.uk).
  2. You’re allowed to claim tax reliefs and allowances on certain items. Click here for details (opens in a new window, Gov.uk)
  3. You’re taxed on the profits that you make (i.e., your gross income less tax reliefs/allowances).
  4. Your tax is also dependent on the income tax band that you fall in, for example, if your income is above £100,000. Click here for further details https://www.gov.uk/income-tax-rates (opens new window, Gov.uk)

 

Here’s a handy “Simplied Expenses Checker” on the Gov.uk website here: https://www.gov.uk/simplified-expenses-checker

But note this checker is only suitable if you’re a sole trader or a business partnership, and should only be used to give you a general guideline.  You should always seek the advice of an accountant for your financial affairs.

If you have no option but to manage your bookkeeping yourself, get into the habit of reconciling your accounts at the end of each month, as opposed to a rush job at the end of the year, just before you complete your self-assessment online.

HMRC reports that every year, the last-minute rush to complete self-assessments online results in costly mistakes and items forgotten altogether.

Hopefully these tips will ensure that you don’t hand over more than is absolutely necessary!

 

Image Credit: Pixabay.com

 

 

Author:

I’m Mary Cummings, a ghostwriter, collaborator and all round word doctor. I help business owners write and publish business books; I'm also passionate about helping creative freelancers find work that they love - their work sweet spot with work on their terms, projects they love and clients who are a dream to work for.

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