I'm a freelancer, how much tax money should I save?

Question

I've just started doing some freelance work for a company and am not sure how much to save for my tax bill. I will probably earn around £1,500 a month before tax. This is my only job. I heard somewhere that I should save around 28%, does this sound about right? Better to be safer than have to fork out a wad at the end of the tax year!

Answer 1

Well done for going it alone. I trust you have registered as self-employed or will do so soon.

You will be able to deduct business expenses from your earnings before the tax is calculated. But to answer your question you can estimate the amount as follows.

Since you can earn an amount equal to your personal allowance without paying tax and you only pay 10% tax and 8% national insurance on the lower rate band it is best to work it out in two stages.

On the first £621 of earnings each month you will pay £33.45. You will then pay 30% (22% tax and 8% NI) on the balance.

So on £1,500 you will need to put away 33.45 + 268.70 (30% of 879) = £297.15.

Of course this is screwed if you earn less than £621 in any month but should give a reasonable guide. Also if your earnings increase there is the prospect of higher rate tax. This only kicks in at the equivalent of about £3,300 per month.

Answer 2

Hello Dave, firstly I would like to wish you the very best of luck and hope your business venture goes well

Secondly: regarding your question:
I'm a freelancer, how much tax money should I save?
Personally I would take NO chances with Tax or Ni controbutions therefore, I suggest you contact the HMS Customs Office or the Central Tax office or visit their website on http://www.hmrc.gov.uk/menus/officesmenu.htm.
or
http://www.taxofficeuk.com/index.htm
Alternatively save as much as you can. I understand the rate of tax for a self employed is 25%, but remember you also have National Insurance contributions to pay so the more you save the better prepared you will be.

Best of luck

Answer 3

28% sounds a good start.

Do you have an accountant? A good one will be worth his fees and let you know where you can save money. Many will work on a continual basis for a smaller amount that a one off consultancy fee, once per year. If you home is also an office you may be able to claim money back from your utility bills and also for any tools of the trade that you can prove are required.

Good luck with your business.

Answer 4

Assuming that you have no other employment (not clear from the question),
your tax liability including Class 4 will be c£3600. Any expenses claimed will reduce this. Good luck.