Self employed - how much tax to put away

bluenitsuj

Hi

I have just taken a self employed job working 20 - 40+ hrs per week, working from home ( websites etc ) and wondered how much to put away for Tax and NI each month, is it roughly 25% or 20%? Do you take that amount from the gross amount each month or allow for your tax allowance and then take it from whats left? Can I claim for fuel for when I have to visit the offices once a week to do work?

I also have a small online business.

I am registered for self assessment tax online and understand I just put in the total earnings for that tax year, less any discountable expenses.

Estateprincess

I'm self employed and I put 30% away each time I get paid. This allows for Tax & NI contributions and usually a bit left over to pay towards next years payment on account once expenses have been deducted.

I think 30% is what Martin Lewis recommends.

mdcollins1984

Now that my income has stabilised, I know how much I need to save to cover my next tax payment (plus some extra just in case). However, even though I am self-employed I have pretty regularly work from few clients so can do this reasonably safely. But yes, I do know I'm at risk of it getting out of hand if some work dries up. Get your NI set up via DD, monthly if you can, as c.£10 a month can just come out without really worrying about it.

As you're starting from scratch, 30% is a pretty good estimate to start with (this does cover the NI I just mentioned).

Also, beware the 'payments on account'. If you can, quickly estimate whether you will earn £14,400 or more. This is your personal allowance (£9,440) on which you won't pay tax, plus the next £5000 which will be taxed at the normal 20% (i.e. £1000 tax to pay). On that figure, you only just break into the 'payment on account' threshold in which you have to pay the first 50% of the following years tax in advance on top of the year you are paying. This can be a bit of a shock the first time, if you don't expect it. Once you have done it once, providing your income is fairly stable, your future bills will also be fairly stable, as it is the balance of one year (i.e the second 50%), plus the first 50% of the following year. You are effectively 6 months in advance.

Delphina

It depends on the total of your taxable income (self employed, PAYE, savings, rental income from properties, dividends, etc) and if you are exempt from paying NI.

I don't know if your online business gives you any self employed or PAYE income, if it does then, you need to include that.

For example:

If you are not NI-exempt and your total taxable income means your highest rate of tax is at 20%, putting away approx. 30% should suffice. If NI-exempt, 20% should do it. But I personally prefer 35% or 25% respectively due to POA (Paymen On Account).

USUALLY if your SA tax bill is £1,000+, you may also be asked to pay 50% of the amount due in Jan on top of the amount due, and then another 50% in July. For example, your 2012-2013 self Assessment tax return is due by 31/1/14 if you file online. If your SA bill (or balancing payment) is £1,200. By the same date in Jan, you are required to pay £1,200 plus £600 and by 31/7/14, you are again due to pay another £600. Try to file your return ASAP each year before end of July, this solves half of the POA issue and is a much safer solution than reducing POA.

If you have already paid at least 80% of your total tax for the year at source; for example via your employment ( through tax code), POA will not be the case.

When you file your return, you need to include ALL SA and PAYE income AND ALL paid tax at source or your tax calculation will be incorrect. This means you need the P60 pay and tax figures from your job (s) and annual savings / bank certificates, etc. from the same tax year!

chrismac1

You can claim for mileage - 45 pence per mile, telephone, use of own home, business insurance, and probably various other expenses you've not thought of. In any given tax year, unless you make £40k or more in profit, 29% is the absolute maximum as beyond 9,940 you will pay 29 pence for every one pound in profit.

If you think you can make over £20k then you should probably set up a limited company for your business.

If you are a sole trader and you could have a tax bill of over £1,000 - which is £12,375 in profits for the 2013-14 tax year - then you'll have to factor in a payment on account of 50% IF you believe 14-15 profits will be at least as good as 13-14.

All of this is some way off. Assuming you started up after 6 April 2013, your first tax payment (other than Class 2 NI) for all of this will be on 31 Jan 2015.

tiger_eyes

You can rig up a spreadsheet very quickly that will estimate what you'll make by the end of the year and calculate what percentage you should be saving for tax. Mine says that I'm on track to pay about 20% total across income taxes, National Insurance, student loans, etc.

nephilim

My brother is Self Employed, as a barber. He puts 30% of everything (including tips) in a savings account. Files his tax returns and pays, and generally has a bit left over.