Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! Cut out those unexpected tax bills by taking a peak behind door number 22.
Save for your tax as you earn
Anybody within self assessment will be aware that we’re just 40 days from the 31 January tax payment deadline. Any balancing tax payments from 2018/19 will need settling by that date along with the first payment on account on income arising in 2019/20, if applicable.
Nobody likes an unexpectedly large tax bill and I can guarantee you without fail that anybody who doesn’t keep tabs on their income or gains will significantly underestimate their tax bill.
The simple solution is to save for your tax as you go along. Open up a new bank account and then every time you receive untaxed income transfer a percentage of it into the separate account to cover the tax thereon.
How much should you transfer? We find that basic rate taxpayers with earnings up to £50,000 should set aside between 15% and 25% of their income (before deducting expenses) with everybody else saving between 25% and 35%. The exact percentage will vary depending on your level of income and the industry you operate in.
If you’re unsure of how much to save, ask us. Provided you can estimate your earnings from all sources in a given tax year then we can work out how much you need to set aside based on that estimate.
If you’ve not yet started saving then your best strategy is to get your tax return submitted nice and early following the end of the tax year. An April or May submission will give you the best part of 8 or 9 months to plan.
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