Clear the credit card or save for next year's tax bill

[Rollingpurple]

DH is self employed. He had a really bad year 22-23 which we've just now found out he'll have a tax refund of about £4000. He's currently having a very good year and has turned over £27,000 so far this tax year but he's only actually saved £1500 for his tax bill. He's supposed to save 20% of every payment that comes in which more than covers his tax bill once his deductions and personal allowance are taken into account which he does but he's aways behind so he saves out of the current year for the previous year which never works out properly. He had such a large tax bill last year (that's now being refunded) that he had to pay savings from this year to pay that in July which is why it's so low now even though generally he is pretty consistent at putting aside his 20%.

He also built up £7000 worth of debt during the bad year last year which he has on a 0% credit card but in a year he's only manager to get it down to £4700. The 0% interest period runs for 6 more months.

The tax refund plus his tax savings will clear the credit card and free up the £100 minimum payment he's committed to every month and free the burden of having to pay interest once the 0% runs out. But of course then he has to save for his tax bill for January 2025 from nothing.

Either way, I will be helping him out. I'm PAYE but earn a lot more than him and am better at saving so one way or another both will get paid. I've just returned from maternity leave so my savings have been pretty scarce recently but they're building up again now and I can save about £500 a month comfortably I will definitely be able to help with either if I have to.

I'm just not sure which would be a better use for this money. It would bring him up to where he's supposed to be had he not used so much to pay the July tax bill for last year. But then is it better to just get rid of that debt so it's no longer hanging over him and then work on saving up for the tax bill over the next year?

Thanks in advance.

If he's not paying interest why would you pay off the credit card? Interest rates on savings are but bad at the moment, put the tax refund in with the savings, keep saving.

His income is erratic and he can go several months with very little before a bigger payment comes in but then he's just paying back the months that he's been struggling; it's having set in stone outgoings that tend to be the hardest on him. With me back at work I can now pay more into our joint account again and if he were to free himself of the credit card minimum monthly payment that's another £100 he doesn't have to pay each month which takes the pressure off him during the harder months at work.
That's our thinking anyway but obviously, we understand the pros and cons of both options and can't decide which option is better.

I'd say, put the tax money by. Get him to understand that he cannot spend tax money, its not his money to spend and yhe tax man is not one to accept excuses. I say that with love as another self employed person x

Maybe get a side hassle part time job, delivery driver on Fri, Sat night for example just to get know top of finances x

Either way, I will be helping him out. I'm PAYE but earn a lot more than him and am better at saving so one way or another both will get paid

While the debt is 0% I'd say he should save rather than pay off the debt, it's likely he can move the debt to another 0% deal if he still owes money when this one runs out.

But you also need to question why he's saved so little. Is it because of the reduction in household income and it will right itself once you're back at work? Is he spending more than is affordable on non essentials? He needs to prioritise tax savings because it's easy to get behind and hard to get back on track if you do.

I'd also question whether self employment is for him and if it's possible to do the same/similar work on an employed basis. You say he has turned over £27k so far this tax year, but how much of this is profit and how will his earnings continue over the rest of the tax year? Is his work seasonal? Is he paying into a pension? How many hours a week does he work to earn this money? Is this work flexible in a way that means he can do some of the childcare so you can reduce the amount you need to pay for? From April, NMW will be £22k pa for a 37 hour week so he needs to be earning significantly more than that from self employment to account for the lack of paid holidays and employer pension contributions, likely at least £30k profit (not turnover) to make it worthwhile compared with employed work.

You need to work on a household budget as a team. If there’s enough coming into the household now you’re back at work, then you can work on a budget that smooths out the peaks and troughs. It sounds like you keep your outgoings and finances somewhat separate and it would probably help to look at that and make some changes.

I think you should save the tax refund. If in 6 months’ time he can’t get another 0% balance transfer, or can’t transfer the full amount remaining, then that’s the time to use some of the savings. But alongside this he needs a spreadsheet of his expected tax bill next year, and how much he’ll need to pay when (payments on account etc) and then he can see how far behind he is there.

Try to keep the tax money separate from the credit card debt if you can. If you’re ever in real trouble it’s better to owe credit cards than HMRC.