Setting aside tax money

catoutthebag

Every year I seemed to get in a muddle with mt tax, in terms of setting aside £ for tax, nation insurance & student loan.

That is, I aim to set aside 1/3 of my total income (gross), which, with some focus, I do.

However, it always seems I've set aside TOO MUCH, which is money that can be spent on other things.

So I question, am I doing something wrong?

Granted, it's a better predicament to be in than the inverse, but suggestions welcome.

My GROSS income seems to be around 35k.
Net income after expenses such as mileage etc is around 28k.
So crudely speaking, I pay tax etc on around 18k after personal allowance...so say 6k per annum, or slightly less when off setting pension contributions.

I don't work everyday, but my daily income is around £200.
The way I have been working is it strictly take away one-third of this away to save for tax, national insurance, student loan.

I pay £275 per month into a personal pension.

So....doing my quick calculation today, i ALREADY have (or should have according to the way I take away 1/3 of gross income, £10k saved!!! By mid august!!

So I understand, my way of taking away 1/3 ignores the personal allowance, but even then I seemed to come up with a generous figure.

Any suggestions, given my numbers how I should work?

- continue taking off 1/3 from every pay packet?
- reduce this to say 20% of the pay packet to take into consideration personal allowance, pension, etc
-work on net figure of 28k division by 12 , which works to what I'm already doing, roughly
-work on 18k after personal allowance division by 12, which would drastically reduce what I set aside

Any suggestions welcome

Dazed_and_confused

My gross income seems to be around 35k.
Net income after expenses such as mileage etc is around 28k.
So crudely speaking, I pay tax etc on around 18k after personal allowance...so say 6k per annum, or slightly less when off setting pension contributions.

Do you have other income sources to include in your tax return? If not you aren't a higher rate payer and your pension contributions wont affect your self assessment bill at all - if you think otherwise why?

A taxable amount of 18,000 (net profit after expenses and then less personal allowance) is only going to result in tax due of £3600 (18000 x 20%), nowhere near £6000.

One thing to remember though is that it's very difficult to get all this in alignment. Your business accounts period may differ to the tax year and then you could float in and out of needing to make payment on account (although you probably always have to pay them if 18000 is representative of your profit) so it's very tricky to tie it all up.

You could have a very large tax bill due in January 2017 (balancing payment for 2015:16 and first payment in accoun for 2016:17) which could, theoretically, be based on your business accounts to 30 April 2015.

catoutthebag

Why would I have a big bill in January, when it's broadly speaking similar each year, when I've got thousands saved up, and could theoretically pay it all now, including the POA? The bill is always payable, always saved up, it will be no different this time.

Yes I'm a 20% payer, but your figure doesn't include national insurance and student allowance, which I take into consideration when setting aside 1/3 gross....a safety net.

I take your point re: pension.

So how should I restructure this? Put aside a fixed monthly amount, irrespective if I've worked 12 or 15 days for example?

£500 pcm?...6k annum
£750 pcm?...9k annum

As clearly I seem to be putting away too much which restricts other parts of my life.

xylophone

You are self- employed?

https://www.gov.uk/self-assessment-ready-reckoner may help.

catoutthebag

xylophone wrote: »

You are self- employed?

https://www.gov.uk/self-assessment-ready-reckoner may help.

Yep, and seems I need only put away £450...or I guess £500 with student loan, as predicted . So normally I'd be putting away 700-900....wow..