By 31st January not only does your Self Assessment tax return have to be submitted, but you also need to have paid any tax you owe to HMRC. But how can you put aside money to go towards your tax bill when you aren't sure how much you'll owe? That's an easy one - you find out!
Work out your profit
You pay tax on your business profit, which is your income minus your expenses. If you know what your profit is, move on to the next step. If you're a bit behind with your bookkeeping, here's what you need to do.
First, download my income and expenses tracker (it's free!) below.
Now you'll need to enter your business transactions for each month, including all your income and expenses, and your working from home expenses if applicable. Do this for the whole business year (6th - 5th April, or you can do your accounts from 1st April - 31st March if you prefer).
Once you've entered your transactions for each month, the Summary page will magically calculate your total income, expenses and profit for the year (JK, it's a not-so-magical spreadsheet formula). Job done!
This can be time-consuming, but it has to be done, so it's better to get it done now instead of procrastinating.
Find out your tax rate.
I wrote about the UK tax thresholds in detail here, but here's the short version of what you'll pay:
£0 - £11,850: tax-free
£11,851 - £46,350: 20%
£46,351 - £150,000: 40%
Over £150,000: 45%
Keep in mind that you only pay the tax rate on the income you make in that tax bracket. So if you earned £15,000 during the last tax year, you would only pay 20% on the £3,150 you earned above £11,850.
You can also use this calculator to estimate how much tax you'll need to budget for (keep your eyes peeled for an Easy As VAT version coming soon)!
Don't forget about the hidden extras!
You'll also most likely need to pay for National Insurance Contributions, student loan repayments and payments on account as well as income tax, so don't let them slip your mind - make sure you include them in your calculations and click the links above to find out how much you'll owe.
Keep in mind that you'll only ever be able to estimate your tax bill until you've filed your tax return, but using these tips you'll have a pretty good idea of how much you'll need to budget for.
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