Saving for self-assessment makes sense

Saving for self-assessment makes sense

It’s about three months to the day that many business owners dread – self-assessment payment deadline!

As well as getting the tax return submitted on time, you have to pay what you owe by then, too. Don’t leave the tax return too late because you may end up struggling to find cash to pay it.

While coronavirus lockdowns may have affected your business since March, remember that the upcoming deadline of 31 January 2021 is for your trading year 6 April 2019 to the 5 April 2020.

So, if you were doing well right up until the lockdown, you might have a larger payment to make than you can manage. There is an extension to the deadline but as we explain later, there’s a good reason to pay what you can!

Now is the best time to plan and be prepared for the self-assessment deadline day. So make sure you have submitted your self-assessment tax return. If you haven’t yet, do so soon. This means you will know now how much you owe on 31 January 2021.

We strongly advise that you plan ahead and start saving. It’s a great time to do it and once you start you won’t have the panic of finding cash in future years.

Save for self-assessment

Due to a combination of tax, National Insurance and other taxes, such as VAT, your bills can quickly rack up into the thousands. If you leave your self-assessment tax return to the last minute you may find you have only weeks to find the cash.

Put a long-term tax saving plan over the course of the year. Moving cash into a savings account that you only use for paying tax makes a lot of sense. If your business isn’t cash rich, you will automatically use whatever money is in your credit account.

As a result, you may end up without the funds needed to pay your self-assessment taxes. It’s better to save over the year as it is less stressful than having a lump sum payment in January.

It sounds simple, but it can be easy to overlook when you’re busy working for clients and customers.

Work out what you owe

Filing your self-assessment return means you’ll know what you will owe. If you find you always end up submitting at the last minute, get an accountant. They will do this for you and understand the complexities.

By using HMRC’s ready reckoner, you can work out a rough estimate. It is a rough estimate, but it will take the sting out of the real figure. Just make sure you’re honest with what your net profit will be!

You could also try to work it out for yourself! Basic rate is charged at 20 per cent and National Insurance is nine per cent. Why not stash away 30 per cent of your earnings so you’ll know you’re covered? If there are some adjustments for personal allowance and expenses, you’ll come out on top.

If you have a few quid left over, it can go towards investing in your business.

No matter how you do it, having some idea is better than being blind and having a shock in January!

Stay on the right side of HMRC

Getting on the wrong side of the taxman is a big issue. Not paying on time could land you with an investigation, which is unpleasant!

We’ve all heard horror stories of HMRC investigations. They can be brutal, time consuming and extremely stressful. It’s best to avoid this by ensuring you have enough cash stashed for the deadline day. Better safe than sorry!

Self-assessment and Covid-19

The Chancellor last month announced that those who pay self-assessment tax have an extra 12 months to pay their outstanding bill. This includes the ability to extend your payments on account from 31 July 2020.

HMRC’s Time to Pay scheme may appear to be the perfect way to keep hold of your cash for longer. But if you have the ability to pay, we advise paying! Even if you can manage small amounts, reducing your tax bill makes a lot of sense.

Leaving it could mean you end up with a much bigger bill in January 2022 that you might not be able to manage. The government’s assistance is to help those with the biggest financial hit, but their kindness will run out! If you owe HMRC money, they will want it and it could cost you more in the long run.

If you need help with your self-assessment returns or are confused about the jargon, contact us today for a chat.