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When you’re self employed everything you are paid will be untaxed and it is your responsibility to work out how much tax you have to pay.
I’ve worked with many clients over the years who have had the shock of a huge tax bill in January and July.
So here are my recommendations for budgets from your tax bill.
HMRC Self Employed Ready Reckoner
HMRC have a great tool which estimates your tax and national insurance.
Input your earnings and it will give you an idea of your annual tax bill. It’s a really quick and easy way to estimate what you need to pay to help you budget your personal finances.
Open a Deposit Account
Every time you receive a payment from a customer you can put away an amount away which goes towards income tax.
Do this at the highest rate of tax you pay.
You may find when you actually calculate your tax, take advantage of all allowances and reliefs that you are entitled to that you’ve even accumulated some savings.
Create a Budget
Creating a business and personal budget is the ultimate way you can start to take control of your finances.
In your business
Pay Yourself a Salary
Paying yourself a fixed monthly salary will avoid the need to dip into your business earnings, assuming your business income is fairly predictable.
When you reach your tax payment dates, the amount you need to pay HMRC should be fully budgeted for.
Pay HMRC an Amount Each Month
There is actually no need to only make your tax payments twice a year in January and July. You could consider making interim payments, even using a standing order, to pay a little amount of tax on a regular basis.
It’s a nice way to move the money out of your account.
You should note that HMRC won’t pay any interest on money held on account and if your earnings do take a dip then you may be in a position where you have overpaid on your tax. You’ll need to submit your
Get a Bookkeeping System
Some bookkeeping systems estimate your tax in real time. It’s an easy way to see what you know so you can keep it in mind when you are spending money.
I definitely recommend you consider how you budget for your tax. At the very least it will eliminate the worry not knowing can bring.