About HMRC and self-employment?(15 Posts)
I have been self-employed for 14 years, and have an accountant etc, and pay my taxes as demanded. However, if you are self-employed your income can fluctuate dramatically, but you are taxed as if you earn what you did the previous year IFYSWIM.
So you have a really good year, then a drastically bad one, but in the bad year you are taxed on the basis of the previous good year. What this really means is that you can never get ahead (unless you earn megabucks enough not to worry).
If you are on PAYE your tax is taken at source, on the basis of what you earn that year and you dont have to think about it (except begrudge the amount obv!)
The move to the current plan was brought in by GB (I think?) to bring forward tax revenues - but takes no account of fluctuations in income. In the current economic climate especially, wouldnt it be fairer to pay tax on what you ACTUALLY earn, rather than on what you MIGHT earn?
You can claim to reduce the payments on account (if that's what you're talking about)-speak to your accountant about it as they should know this...
Surely you get a rebate on the bad year in the year following?
Our accountant spoke to the Revenue and agreed a reduced payment.
You do pay tax on what you earn, it is only the payments on account that are based on the previous year and these are then offset against your actual liability and give rise to additional payment or repayment.
If you know during the year that things have changed dramatically you can claim to reduce these.
Yes you can do that, but if your income fluctuates like mine does its difficult - you have to estimate. I have a basic fee income, but no way of estimating what I can pick up over and above that. So you over-estimate your income, pay more tax that year, or under-estimate and pay more tax the next.
If you have overpaid you get a tax rebate, but that comes 6-9 months after you've paid in the first place.
When you are living on a breath of fresh air, it can be quite hard...
You don't even need an accountant to do this - I have reduced my payments on account on the basis of a year where I earned a lot less and just filled in the relevant section when submitting my return.
Surely during the good year you put by money for tax so that you can pay the bill at the end of the year? Am I missing something?
When I first went into self employment a good few years ago I put 25% of everything I earned into a savings account. I didn't even count it as mine to spend. Anything left after paying tax was then mine to spend.
Over the years I've found I don't need to put nearly that much by as I hadn't factored in personal allowance and I'm not a big earner, but I still budget for it.
To have a good year and spend it all and then not be able to pay the tax when it's actually due because you're having a bad year is just bad management.
I earn money for a year, give the books to the accountant, and then pay tax for the year just finished in one lump sum. If I earn less the next year, I pay less when that year has finished.
Unless I'm spectacularly missing the point which I easily could be!
If your accountant is doing their job properly the disadvantage of paying tax on account is outweigh by other tax benefits you get.
I actually found that the very worst year was the second year of being self employed when you had to pay the first years tax and the second years on account. So that first January tax bill was terrifying after that it has been pretty much of a muchness. Of course if you get on a file your return ASAP after 5th April before 31st July and you have had a bad year you might not have to pay anything in July.
Have you chatted to your accountant about operating as a limited company? Depending on your average turnover, it might be worth your while. You would only be taxed on the profits you make, after you have made them. And it could be more tax efficient for you.
I don't want to sound rude but you dont seem to have a good understanding of Self assessment or payments on account. For example your tax due for 2012-13 is not due till January 31st 2014. Your first payment on account was due 31/01/2013 yeas this is based on the 11-12 tax bill but surely 3/4 of the way through the 12-13 tax year you or your accountant should have a good idea if your income has dropped sufficiently to justify reducing payments on account. As others have said talk to your accountant get him earning his fee!
I immediately save a third of what I am paid into a tax account to cover VAT and income tax. Every time a monthly or some other kind of invoice is paid, the tax money is set aside. So I never have to worry about my tax bill. If I earn less than expected I make sure to get my accountant to do my tax return as soon as possible, so we know before July each year if she needs to apply for a reduction in my tax bill.
Most people pay their tax when they earn the money.
You don't have to pay yours for at least 8 months afterwards.
Also a basic spreadsheet showing incoming and outgoings will show your actual net of tax earnings at any point in time, so there's no excuse for not knowing what is yours and what is the taxman's.
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