Anxiety level 100 with tax return!
Last year I went from employed to self employed. I was saving for a house and self employed was paying more. I got the house....but realised I hadn't been saving anything for future tax bill between 2019 and 2020. (taxable income that year 25k) Put it all into buying the house. Accountant gave me the 20/21 years return. 12k due to be paid January 2022. Cool not that bad. I saved up for this and paid it on time. Submitted my new tax return April 2021 and I got it back today. I almost fell out of my seat! 38k due January 2023! Income was 80k odd with 20k student loan. I can make 38k by January but I currently only have 12k in the bank.
As you can tell I've been very confused about all of this, I'm bad with money. So the conclusion that I've reached it is that due to me not saving any money to pay my tax bill during the first year, I'm essentially a year a behind financially? And I should have 25k that I should of saved in the first place. And would the only way to sort this out be to spend the next year living like a hermit and putting away 80% of my money. Or do other people get the tax bill which is due January 2023 and not have the money ready yet? Doesn't seem like a very relaxing way to live because it's essentially a debt. Any help would be greatly appreciated to help me unpick this mess.
Did you know there's an MSE app?
It's free & available on iOS & AndroidMSE App
Regifting: good idea or not?
Add your two cents to the discussionMSE Forum
Energy Price Guarantee calculator
How much you'll likely pay from AprilMSE Tools
Next year you make £30,000 after allowances, so you might pay £8,700 tax and NI due 31 January 2023. You deduct the £2,900 paid on account, but add the first payment on account for next year, which is half of £8,700, which is £4,350. £4,350 is also due on 31 July 2023, and so on.
It isn't this straightforward, as allowances for tax and NI were different, plus there is class 2 NIC of £158.60, plus repayments on the student loan (which depend on the type of loan). Also, at your income levels, there will be tax at the higher rate of 40%, although NI will reduce.
Business year 1, 2020/21, say tax and NI £5,000, you pay £5,000 + £2,500 = £7,500 on 31 January 2022 and £2,500 on 31 July 2022. Total paid £10,000, being £5,000 for 2020/21 and £5,000 on account for 2021/22.
Business year 2021/22, year 2, say tax and NI £5,000 again, you pay £5,000 less paid on account £2,500 x 2 = £5,000 plus new payment on account £2,500 = £2,500 on 31 January 2023 and £2,500 on 31 July 2023. Total paid £5,000, being nil for 2021/22 as covered by payments on account, and £5,000 on account for 2022/23.
Student loan repayments don't come into the payment on account calculation.