self employed: putting tax money

catoutthebag

I am self employed and as a general rule I have always put 30% aside for tax/nic/slc.

Obviously recently realised, though I knew already, that I have a personal allowance circa 10k, and I don't pay student loan til above circa 16k...assume I still pay nic on every penny?

In which case, from this April, given I'm moving flat and could do with every pound, is it worth only putting aside the 30% when I reach about 10k in earnings?

And do this every year? I'm sure my money could work in other ways.

What do you do?

PlutoinCapricorn

Many freelancers get into deep trouble when they fail to allow for pending income tax, Class 4 NI and payments on account by putting something aside in readiness. Interest rates are very low now, so saving as much as possible for that reason is not worth doing.

If you can estimate your expected income and expenses, and work out the tax on the profit taking the personal allowance into account, you should get an idea of how much tax will be payable.

TheCyclingProgrammer

Putting aside tax as you earn is a good plan; as PlutoinCapricorn says, people don't always budget properly and if you've only just started trading you'll need to be prepared for payments on account too - your first tax payment will be a double whammy of the previous tax year's full tax bill plus your first payment on account for the current tax year. Putting money aside as you earn it means you should always have money to cover this.

catoutthebag

I've been trading for 7 years.

Hmm..its just tempting that circa £3000 tax free could be used elsewhere...like mortgage

TheCyclingProgrammer

catoutthebag wrote: »

Hmm..its just tempting that circa £3000 tax free could be used elsewhere...like mortgage

Offset mortgage account?

Pennywise

catoutthebag wrote: »

I've been trading for 7 years.

Surely after 7 years, you've now got a relatively regular pattern of tax/NIC payments, so should be able to save a regular monthly amount that will be somewhere near. If you get your yearly accounts and tax returns prepared and submitted early, i.e. May/June/Jul, then you'd know your forthcoming bills with accuracy and would have at least six months to save up if the amounts due were higher than you were expecting. Of course, if you have massive fluctuations in profits from one year to another, then yes, things will be more difficult.

How about using some decent book-keeping software like Freeagent that will actually give you a running total of your taxes, so you know exactly where you stand as the year progresses?

sheramber

catoutthebag wrote: »

I've been trading for 7 years.

Hmm..its just tempting that circa £3000 tax free could be used elsewhere...like mortgage

In that case you will know if you are putting away more than you need to pay your tax bill.

Mojisola

catoutthebag wrote: »

Hmm..its just tempting that circa £3000 tax free could be used elsewhere...like mortgage

Surely you've got it in an account that's earning you interest?

Once you've paid the tax bill, anything left over could then be put towards the mortgage.

cherylsurrey

I put 30% away too, then at the end of my financial year I give my books to my accountant, who then lets me know what my oversave is, I always put more away than I need just in case.


I spend the extra money each year on the mortgage/maintenance on the house etc.

TheCyclingProgrammer

I'd echo Pennywise's recommendation for decent online bookkeeping software (and particularly recommend FreeAgent). It gives you a real-time overview of your business and a fairly accurate estimate of your ongoing tax liabilities and does a whole lot more.