Getting out of tax hole 21 June 2022 at 1:53PM in Cutting tax 3 replies 211 views

Markus247

I understand my problem now but I need some advice on how to get out of this situation. 

I stupidly didn’t save any money the first year I was self employed so now I’m stuck using this years money to pay last years bill. And I can’t save any extra money to catch up. 

Tax due 2020/2021: 15k
tax due 2021/2022: 38k
tax due 2022/2023 (forecast) : 45k

I currently only have 12k in the bank and whilst I can get 38k together by January I can’t save anything else which essentially means I’m trapped in a loop of being a year behind. 
Does anyone have any advice? I’m bringing in a good amount each month but I’m barely have a penny left trying to catch up with tax. 

Any help would be appreciated.

pjcox2005

Call HMRC and discuss a payment plan so that you can catch up in a reasonable time.

That being said, if you have £45k tax due then you have relatively high disposable income so i expect there are areas you can cut back on which i would suggest identifying first so you have a constructive conversation with HMRC.

purdyoaten2

Markus247 said:

I understand my problem now but I need some advice on how to get out of this situation. 

I stupidly didn’t save any money the first year I was self employed so now I’m stuck using this years money to pay last years bill. And I can’t save any extra money to catch up. 

Tax due 2020/2021: 15k
tax due 2021/2022: 38k
tax due 2022/2023 (forecast) : 45k

I currently only have 12k in the bank and whilst I can get 38k together by January I can’t save anything else which essentially means I’m trapped in a loop of being a year behind. 
Does anyone have any advice? I’m bringing in a good amount each month but I’m barely have a penny left trying to catch up with tax. 

Any help would be appreciated.

Can you clarify the position? Have you included payments on account for 2021/22 which you made/ are due to make in January and July 2022?

Pennywise

Have you and your accountant discussed the possibility of setting up a limited company?

You don't have to make "payments on account" as a limited company, so there's always at least 9 months between the end of the accounting year and the date the tax is due.  That would give you a bit of leeway as you can eliminate the "payments on account" which mean tax is paid a lot sooner.

Lots of other pros and cons about converting from sole trader to a limited company, but it may well be worth having the conversation with your accountant if you've not already done so.