Do you put money aside for tax during the year?

[Merguez]

I always seem to leave doing my return until the last minute, not usually a problem as so far earnings have been relatively low.

But this year my earnings have gone up a lot thanks to a new client and I realise that I am going to have a very large tax bill for the current tax year - and I should be putting money aside for it now or there'll be a nasty shock.

Would be interested in knowing how other freelancers manage this?

Yes - DH and I have our own company and regularly save the amount that is due in tax/VAT each month. We are very dull and boring about it. . We have a separate business savings account for it.

We also save up for future capital purchases so that they will not be too much of a shock and it gives us a much better idea of how much our business actually makes not much by the way.

Yes - 1/3 of everything I earn goes in a separate account plus a bit extra for the accountant's bill. If you start to earn more HMRC will probably want payments on account for the year ahead as well so worth bearing that in mind.

Absolutely. I have two separate savings accounts - one for vat & one for tax. I put the appropriate amounts in those accounts immediately invoices are paid. With tax I tend to over-estimate, so that account doubles as a savings pot, that I 'cash in' when I do my tax. I can't imagine just spending it & hoping to have the right amounts left over come Jan - I'd be a nervous wreak!!

Definitely - put money aside. I always have around £10,000 set aside at all times. I know the taxes have to be paid and do not ever want to be caught short. Anything left over (if there is anything) is a bonus. Have had friends who've been caught out with tax bills they haven't allowed for - is not nice. Some have gone out of business because of it

Yes.

When I first became self employed over ten years ago, my DH impressed upon me how I must have an account for this! And that I must always over estimate.

I had been until august when I bought a house and I feel like I can't afford it... Not sure how that works! Oops...! I have enough for last year but they also want a payment on account so will feel stretched.

Interesting, clearly I need be a bit better organised.

We have a direct debit set up for a set amount each month that is roughly 20% of earnings.

I do sometimes have to use it to pays suppliers or staff if customers haven't paid on time but on the whole we don't touch it all year.

It was tough the first few years but calmer now.

I have mine set against my mortgage account so the money is working for me.

I have a separate savings account, but if you feel you would be tempted to spend it, then you can set up a monthly amount with the inland revenue.

Direct debit sounds like a good idea. My earnings vary quite a lot month-to-month which makes it a bit tricky.

You can actually submit your tax return on April 6th and not pay it until the january deadline if you do self assessment. I did that and so i knew exactly how much I would have to pay In jan - and hmrc posted me a helpful reminder with a list of ways to pay.

Just finished tax return and the Class 4 NICs came as a bit of a shock - wasn't expecting that!

And they have asked for payment on account for the next tax year, even though net income relatively small ( well below the top of the 20% bracket).

I buy premium bonds with mine.

I put 30% aside which covers tax and NI and a pension payment.

You really do need to be putting money aside for tax and NI, especially if you are in payments on account territory, which can increase the January payment by 50 PC in the first year, with a further 50 PC due in July.

You can prepare and submit your tax return at any point after the 5 April - this gives you ten months notice of what tax will be due. For a lot of people, tax will be one of the biggest compulsory expenses in a year, I don't understand why people wouldn't want to quantify it as soon as they can.

Yes. This is going to get worse now class 2 NI is going to be taken via self assessment instead of DD.

I'm going to have to start taking this more seriously. At the moment I'm quite cavalier because I only work on average one day a week and earn around about the maximum for nil rate or just a little more.

Always. 40% of everything I earn, usually, or sometimes 50%. It covers tax and NI and occasional expenses like printer cartridges.

Dh doesn't, and it's nerve wracking each time it's due. I try to get him to but he's really reluctant for some strange reason.

I do and would only dip into it in the event of an emergency, OH doesnt.

Nope.
Always had the money ready in good time for the tax bill but always made it work for me up till HMRC needed it.

I've been freelance for six years and up until now I have always winged it, hoping that I'd have enough in the bank when January came around.

Last year this stressed me out SO much (and I am not an anxious person) I decided that enough was enough, and now I put away 25% of everything I earn, so was able to pay the July bill and this January's bill without any worries at all.

It is a much more sensible way to deal with it.

Yep. My invoices are paid into my (individual) bank account, I then transfer 60% out to our joint account which is what I use for all household and personal spending. That leaves enough for tax and NI and pension, as well as the odd expenses (I'm a writer so don't have to buy much in terms of kit).

Talk, by 'work for me' do you mean kept it in a high-interest account or similar? I keep mine in an ISA until it's tax time, but do sometimes wonder if I could make more on it.