Start planning now for your next tax bill
Last Updated on 1 September 2023
There are two stages to paying income tax when you’re a sole trader:
- Tell HMRC about your turnover and expenses in a self-assessment tax return
- Pay any tax you owe
In between these you will receive a tax bill from HMRC.
You can submit your self-assessment tax return as soon as a tax year finishes on 5th April.
You have until the deadline which is the following 31st January. But it’s a good idea to do it as soon as possible.
It means you won’t forget, but it also means you know what tax will be owing way in advance of having to pay it.
And doing your tax return earlier doesn’t mean you pay tax any earlier.
Paying tax also happens by 31st January, as you can see in this pretty colour-coordinated picture of a tax timeline:
Once you’re up and running as a sole trader for a couple of years, and your tax bill increases, you may be asked to pay ‘on account’ for half of the current tax year as well, and then again at the end of July.
So do you know how much tax you will owe for last year yet? If so, are you sure you have enough set aside to pay it in January?
Writing this in September feels strange. Summer is still with us (just) and January seems a long way away.
But you don’t want to get to December and find the tax bill is a nasty surprise. Just check you have enough funds now, or plan how to put a bit aside every month between now and the new year.
Want to ensure you have enough money to pay any tax bill?
Put aside 20%-25% of whatever you earn each time you’re paid.
Put it in a place you won’t spend it.
You’ll thank yourself once the bill arrives just before Christmas.
Having cash flow problems?
If you’re really having trouble meeting a tax bill, don’t despair. HMRC might be able to help you. They have a number of helpful schemes and there is no harm in asking them.
Click below for more information from the Money Helper site:
Posted on 31 August 2023