Wednesday, 1 June 2011

Tax - a nasty surprise?

I was so sad today to catch up with some local news. Our small sub-post office (tiny area, nine villages, 1,400-population) had been experiencing difficult times; and sadly the postmaster has been jailed for mis-appropriating funds from the business.

One of the personal bills quoted as causing him difficulty was his tax bill. We all know how nasty these can be. When I first worked for myself, 'way back in 1997, I had a highly unpleasant time dealing with my first tax bill: I simply hadn't understood the whole setup and what I would be required to pay (including the need to pay in advance to cover the next bill). Having got through that by the skin of my teeth, I swore never to get caught out like that again - and I haven't.

We all have unexpected bills to deal with. The car breaks down at the most inconvenient time; petrol costs escalate; oil prices go through the roof; the computer dies. None of these can be predicted. However, the tax bill can and should be predictable; and anybody who has income that is not covered by PAYE needs to get that prediction right.

It isn't rocket science. Put simply, any business, small or large, has income. It has expenditure. The first sum minus the second shows the profit (or loss) of that business. You're allowed to earn a certain amount before you are taxed on it. The rest is taxed. That's pretty much it.

After that nasty shock, back in 1997, I set up a spreadsheet for myself. I entered all my client income, all business-specific expenditure (e.g. rail fares), and a pro-rata calculation for expenses that were part personal, part business (e.g. mobile phone). With a couple of automatic sums, I can see at any time how much money I should have stashed away ready for the next tax bill; and for the last few years, I've always been prepared within a few pounds of the actual total.

You might be having kittens at the very thought. If book-keeping isn't your thing, then hire a book-keeper. If you can't bear to touch your accounts at all, you need a fully-fledged accountant. However, if you think you could do it yourself, but don't know how, get me or some other similar business to show you.

But never, never let that 'scary' bill be scary again. Life throws enough unknowns at us; give yourself a better chance of dealing with those by being in control of the known quantities.

Please. Do it for you. And if you need my help, contact me today.


  1. One of the good pieces of advice I was given when I started freelancing is to open a savings account and pay the relevant slice of income into it every month from your current account. When the tax is due, you should have more than enough (because of the personal allowance) and you will be getting interest on the amount saved, too.

  2. Absolutely right! It's scary how many folks don't follow even that simple rule.