Self-employed tax confusion - v long, sorry!

[taxconfusion]

Bear with me - I am a name change and very confused so this will be long!

Ok. I am self-employed and have been for several years. I used to do a lot of work for one co and so they had me on paye. I then had minimal additional self employment charges to do via SA. All fine.

Roll on a few years and I have had kids whose birthdays fell in the middle of consecutive tax years so I ended up on maternity leave for at least 6 months of 3 tax years iyswim.

I carried on doing my SA and all was fine.

The first proper year back was 3 years ago and i was totally self employed. I therefore had a huuuuuge shock when my bill came in at about £9k. I didn't have £9k and was totally panicked. I had been stung by the need to pay half up front for the next tax year.

Ignoramus alert.

Anyway, we cashed in our one joint isa and cancelled the loft conversion we were planning. I paid the £9k in to my tax account and breathed a sigh of embarrassed relief.

I pay half again in the July.

Roll on the next year. I do my return and have another big bill but have been salting away 40+% of all pay just in case this happens again. I pay immediately. By this time I have finally sorted out a completely separate business account as my work payments were going in to a second pot as part of my current account suite.

Ignoramus alert.

Everything seems fine but the following year I pay straight away again. I then check through the SA website a few months later and it looks like I actually hardly had to pay anything, despite a similar income level, because of my previous payments.

I go through what I can see on the SA site and it looks like lots of the latest payments have actually been drawn from my overpaying the previous 2 years. I then claimed back £3k in overpayment and put that aside in my business account.

I go on to pay my July payment as requested.

Right, so fast forward to today and I check my SA account and my current biz account and I am still so confused as to whether I mucked up and didn't actually owe as much as I thought so am quids in or whether I just don't get what payment relates to what time.

My biz account has £12,605 in it. This is made up of the tax rebate and work payments since 3rd Feb 2010. I have not always transferred from this account the 55-60% of pay I could take after tax because I am so paranoid about getting a tax sting instead. This is crazy because I have run down my other savings pot in an effort to leave money in this account.

My SA account says I will owe £2741.36 in July as the second payment on this year. Therefore it is projecting that my 2010-2011 tax return will amount to me owing £5482.72

OK. So I am really confused. Did I just get it all wrong before? How much of that £12k+ is therefore 'spare' cash that I didn't need to get from the ISA?

At this point in the year what would you expect to have saved... the money for the July payment AND the money for the next December?? If so, if the figures remained the same for the next financial year then does that mean I need to keep the £2741,36 for July and £5482.72 for December?

One thing I realised when doing my return this year was that the figure I owe pops up and I pay it straight away. However, if I left it a week or so it would then adjust by taking in to consideration what I had paid the July before. I wonder if my paranoia has just meant I have been over-zealous in my payments.

Sorry this is so confused but I am totally at a loss and don't know what I actually have to spend!

My income isn't the same every year but I am saving 40% at least each pay packet. Some months I get £1000, some months I get £3000 and some months I don't get anything at all. I think it comes in between £22k and £32k a year if that helps.

TIA
confused

OK, this is what SHOULD happen.

The tax year 2010/11 has just finished. You don't have to file an (online) return until 31 Jan 2012 but you obviously like to get things out of the way early, so you do your return - lets say there is £4,200 of Income Tax and £2,000 of NI due for the year, so £6,200 in total.

Now in January 2011 you will have already paid some of this in advance - say £3,000 (did you make this payment early, in December?) so you now owe only the balance of £3,200, but DON'T PAY ANYTHING NOW. You will be due to make another payment of £3,000 by 31 July 2011, so when you pay that it will leave £200 owing. You will need to pay that by 31 January 2012, plus the first installment for 2011/12 which will be estimated as 50% of £6,200 so £3,300 in total.

So by now, you should have saved however much your tax and NI bill is for 2010/11 LESS what you have already paid for 2010/11 in January 2011 (which is probably £2,741.36). This will leave you enough to pay the £2,741.36 in July, with any left to be paid in January 2012. You will also have to pay 50% of your estimated bill for 2011/12 then, but you have 10 months of earnings to save up for that so you wouldn't expect to have saved any of it by now. In April 2012, the cycle starts again.

It sounds like you have about £9k more in your business account than you need - mine's a pint

Blimey.
I am a prize plum.
Really??
If you are right then I think I could buy a few people rather more than a pint.
Thank you! I am just so stupid with these things. I am actually a reasonably intelligent person but there is something about TAX that makes me in to a quivering wreck.

We got stung when dh went from mostly employed to self employed then back again.

Basically if you had a good year then the taxman assumes you will have that level of income the following year and demands half up front (huge shock and it caught us out too).

However if the following year you don't make so much then the money you already paid will offset what you owe for the next year.

We roughly work on saving a third of self employed income for tax and national insurance.

It may be worth you paying someone to do your tax return for a year, just to show you what to do and to make sure you are making the most of all the allowances you can claim. eg if you work from home are you claiming for a % of your phone calls, internet, electricity etc. (I don't work in tax, DH does - I think his company charges £150 for a basic tax return, more if you have several sources of income like big investments, let property etc, so not as expensive as you might think.)

Tax is designed to be confusing - thats why they change the rules every year!!