Things to Remember When Paying Taxes While Self-Employed

Filing taxes can be frustrating, but it’s inevitable. It’s every citizen’s responsibility. Always remember that if you want to avoid even more frustrating consequences, taxes are better done sooner rather than later.

Tips for Paying Taxes When You’re Self-Employed

Taxes, in general, seem to be a burden to most people. What more if you’re self-employed and handling everything at home as well? If you’re looking for ways to simplify your tax preparation, there are a few things to keep in mind.

Register for Self-Assessment

In the United Kingdom, a self-assessment is required from every individual who has a certain amount of income. The self-assessment form will ask for details like the income you earned and the tax you paid for the year. Yes, people are entitled to personal allowance, but it’s important to note that you still need to declare your earnings if you earn below the threshold for personal allowance.

Save for Taxes

Saving for taxes provides you with extra security. As a self-employed person, you have to ensure that you have a reserve for unexpected events. Try making a separate savings account to place tax money in, so you can be sure not to touch it until the tax deadline comes. This is definitely better than having to scrape together some money at the last second.

Pay National Insurance Contributions

In the UK, you are supposed to pay National Insurance Contributions (NICs) in the same way you pay income tax. This kind of tax is paid to the government to provide you with benefits for things like pensions, health care, and unemployment insurance. However, this does not mean that you are taxed nearly as much as you would be with income tax, so you can rest easy knowing that you won’t be paying an insane amount of money to the government.

Report Income Correctly

If you’re a self-employed person, you may have several sources of income. However, you will only be taxed on your profits, so you need to be very careful about the money you report. If your business is seasonal, things get even more complicated. You have to be cautious that you don’t report all of your income in the same year of self-employment because you will be taxed for the whole year. 

Submit on Time

Ensure that the process of tax submission is easier by doing it early. The deadline for submitting tax returns is usually six months from when you became self-employed. If you fail to do this, you are liable to pay a penalty that is 10 per cent of your gross tax liability.

If you fail to submit a tax return, you will be fined £100 plus 5 per cent of the tax underpaid and an additional £5 for every day you intend to delay it. If you don’t want to risk paying an additional amount than your earnings, you need to make sure that you don’t fall short of the deadline.

Conclusion

If you’re self-employed, you must not overlook your tax needs. Even if you’re an individual who earns little income, you still need to report and pay taxes. The most important thing you can do as a home-based business person is to make sure that your tax payments are on-time. Manage your earnings gradually throughout the year, and you’ll start to realise that taxes might not be as frustrating as you thought.

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