With the self-assessment tax return deadline approaching, cries of ‘how much?!’ can be heard up and down the country! It may be too late for you to change it this year, but there are things that you can do to avoid a huge unexpected bill in January next year.
Why does it come as a shock?
Many self-employed people are shocked at the size of their tax bill, and it is because they haven’t worked out what profit they have made over the last financial year. Understanding your finances and how much tax you should be paying are essential things to think about if you want to avoid the January shock.
It isn’t your money
If you are making money as a self-employed person or a business owner, you need to put some money aside for the taxman. It would be great if all the money belonged to you, but part of it is owed in tax. It can be difficult if you have gone from being employed to being self-employed. The best way to approach it is to put aside the tax contributions every month, just like you would have to if you were employed.
Following the rules and knowing what to pay
Paying tax to HMRC is a part of life, and they always will be. Everyone has to pay them, and this won’t change. Some people think that an accountant will half your tax bill, but that isn’t possible. The benefit of having an accountant is that you will know what tax you have to pay, and it won’t come as a shock to you if you keep up to date with your finances.
The amount that you need to put aside will depend on you and your work. If you are a self-employed sole trader, then you will be safe to put aside 25% of your profits, although if you are a higher rate taxpayer, then you should set aside around 35%. The amount due may differ, but it’s always better to be safe than sorry.
The only reason why your tax bill will come as a shock to you is that you haven’t budgeted for it, or if you haven’t thought about it. Don’t be like the millions of panicked people around the country, get yourself organised and be ready for your next tax bill. If you find working your tax out to be too stressful, then you should seriously consider getting an accountant to help you.