Many self employed or freelance workers, especially those who have recently left traditional employment, sometimes to forget that they will receive a tax bill at the end of each financial year.
Unlike those who work for an employer, the self employed do not have tax taken off their pay automatically each month and, although of course the majority are well aware that they need to pay tax, if they do not set aside some money after each job, they can be in for a shock at how much is owed at the end of the year.
It is easy to receive money and think of it as your own, forgetting about the tax until the bill arrives months later. This is a dangerous mindset to get into though, all too often money is spent even though it is not rightfully yours and belongs to the taxman. This can cause massive problems, and increased financial penalties, when the time does come to pay your tax.
It is advisable, therefore, to remember each time you are paid, a percentage of that money is not yours. A sensible thing to do as a self employed or freelance worker is to keep in mind that for every £100 you are paid, £30 belongs to the tax man, and, each time you are paid, put £30 of every £100 into a separate account. This way, when you need to pay your tax bill, there is enough to cover it.
Of course some people will be able to pay a lower percentage of their earnings into this “taxman’s account” for example those who have allowances for travel or expenses. Higher earners may need to put away 40 or even 50%. It is advisable though to put away slightly more than you think you will need, just to be on the safe side. This way you should also have a little left over to treat yourself too, after each tax bill!
It is also very important to remember the deadline for when you need to submit your self assessment tax return.
