Starting as Self Employed and Paying my Tax

Alex_Knight

Hi. I am starting a new job as a self-employed graphic designer. I know I will need to pay tax and NI later when my accounts go in (April 2021) and its all worked out but I would rather pay something towards it now. I would like to pay 20% of what I invoice and paid from day one every month. So when my tax bill and NI is worked out next year I already have a chunk paid towards it. How do I do this please? I want to pay it to HMRC so I know its safe/and paid

Many thanks!

macman

That's frankly insane. Just put the 20% into a savings account towards your future tax bill if you must.
Remember that you won't be taxed on 20% of your gross income: you need to deduct all your allowable business expenses, which should bring that down considerably.
This, plus the additional time you are given to pay your tax bill, is one of the few advantages of being self employed, and will assist you in getting through the periods when your monthly income might be lower than average: don't throw that away by making unnecessary payments on account.

MalMonroe

I'm self employed and totally agreed with macman. In fact, that's what the self-employed people I know, including me, do. 

Nobody pays HMRC before we have to! But we all save towards the payments, of course. Better off in your savings account than HMRC's bank! 

badmemory

Try looking at it like this.  If you plan to buy a TV in Jan 2022 would you pay the shop for it now or would you put the money for it into a savings account until you need it?

Alex_Knight

I was told by a friend who is an electrician he does 20% as part of a government scheme. And likes the way it works. Im not allowed on the scheme as its only for the construction industry. Id still rather pay towards my tax and NI like I was employed. So there is no way I can do this?

01afraser4

If you are certain that you wish to make payments in advance despite the advice offered, there is a way to do this. It is called a budget payment plan. You can find more information regarding this at the following link under the heading 'If you want to make regular payments in advance'.

https://www.gov.uk/pay-self-assessment-tax-bill/pay-in-instalments

uknick

Alex_Knight said:

I was told by a friend who is an electrician he does 20% as part of a government scheme. And likes the way it works. Im not allowed on the scheme as its only for the construction industry. Id still rather pay towards my tax and NI like I was employed. So there is no way I can do this?

He's talking about the Construction Industry Scheme and if you have a look at the threads on here about tax refunds, there are those on the scheme who get a significant tax rebate from HMRC each year because too much has been deducted under the CIS.

I can only agree with others here; you must be barking mad to give HMRC money up front you don't have to.  Even at a 0.01% interest rate you get more than just giving it to HMRC.  If you're not confident you can save the amount due, why not set a up a number of monthly standing orders to various regular saver accounts?

macman

Alex_Knight said:

I was told by a friend who is an electrician he does 20% as part of a government scheme. And likes the way it works. Im not allowed on the scheme as its only for the construction industry. Id still rather pay towards my tax and NI like I was employed. So there is no way I can do this?

If you don't have the financial discipline to put the money aside for your tax bill, then perhaps you are not really suited to self-employment?
There may be months when you have zero work, or when your customers are late to pay your invoices, or you incur a bad debt, and cashflow is then crucial to keep you afloat. 

Alex_Knight

Hi. I honestly appreciate all the posts to help me. 'If you want to make regular payments in advance' https://www.gov.uk/pay-self-assessment-tax-bill/pay-in-instalments

This looks perfect. Id rather lose some interest and act like Im employed and pay 20% in advance. Id then hope for a rebate once my books are done by someone qualified to do them

Thank you all

macman

So not only do you want to pay in advance, but you want to overpay and wait a year or so for a rebate? As I pointed out earlier, you are taxed on your income after deducting business expenses, not on your gross income, so you should not be paying anywhere near 20% of gross.
You really don't need to employ a book-keeper in your line of work, you are not trading in stock, you are simply selling your time by the hour. Just keep simple income and expenditure accounts.

Alex_Knight

Hi. Thank you, Iwill take that advice.All i  did was use an online calculator on here and put what i thought i would earn a year and then work it back as a percentage. 20% was a bit under the figure but dont want to go too low as i do want what I pay in to cover my TAX and NI. Really appreciate all the advice people have given me. Thank you!