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Money management is central to being able to manage your taxes.
As we all know, getting your taxes right first time is far from a given, and any help you can get is worth grabbing with both hands. That’s why we’ve teamed up with our trusty partner Money Dashboard to bring you the tips and know-how on why good money management should be your calling in life.
And – not to go for the big sell or anything – if you do decide that you need a helping hand, Money Dashboard has a pretty fabulous app to help you stay on top of things. And it’s completely free to download. Just saying.
As you might expect, money management is basically the process of staying on top of your financial affairs. When you’re self-employed, this is even more crucial to do as your professional life can be less financially stable than it is when you’re employed. Bear in mind that you’ll have multiple clients, you may be working for them at varying rates, and each day of work will be different.
In addition to this, you will have multiple streams of income to manage. And that’s not to mention that you’ll have to keep an eye on splitting up your personal and business expenses as well. With so many things to manage, using software or smart banking tools are advisable.
Here are a few tips that will help you manage your cash through the tax year:
Splitting your personal and business expenses is crucial. An issue that a lot of first-time freelancers face is that they don’t plan their tax year around doing their tax return. As a result, they end up in January sifting through a lot of receipts and bank statements to remember which spends were which. A quick fix for this issue is to open a business account. You can use it to view all of your self-employed business activity – and if you ensure that you only use the card for your business spending and to receive pay from work, you’ll be instantly organised for the January deadline.
If you’re super-organised, you’ll have a business account AND some spreadsheets. But no one is perfect, so if you can only organise yourself with spreadsheets, that’s more than enough.
We’d recommend starting a spreadsheet for each tax year. Split it into monthly tabs and record your income and expenses into each month. Recording your finances like this is not only useful for having an overview of your business earnings and spending, but it will make collecting it all at the end of the year quick and easy.
QUICK TIP: Make sure that you note down any descriptions of each entry so that you know what’s what later down the line.
When it comes to your taxes, you’ll be putting around 20% of your earnings aside anyway to pay your tax bill. But why stop there? We all know from the pandemic that life can throw some unexpected things at you, so the more prepared you can be for a range of circumstances, the better. It will put you in good stead to make bigger purchases (e.g. buying a house) and generally is a good way to prevent money from being a major day-to-day stress.
This is where having an app like Money Dashboard can be useful – enabling you to view all of your accounts in one place. You can use their budgeting tools to ensure that you don’t overspend and watch your savings
Preparation is key, right? Don’t allow your tax bill to hang over you like the ghost of Christmas future. Cut out the element of surprise and calculate what you’ll owe as soon as possible. As a self-employed person, you’ll have to pay Income Tax and National Insurance, depending on how much you earn each year.
You can use our self-employed tax calculator here by putting in your earnings and expenses to see how much you might owe.
When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.
However you may be eligible for a tax refund when:
In your case when you earn £50,000:
You pay no income tax on first £12,570 that you make
You pay £7,286 at basic income tax rate (20%) on the next £36,430
No contributions on the first £9,568 that you make
You pay £3,549 in contributions (at 9%) on the next £39,432 that you make
You pay £159 in NI Class 2 contributions
A study in 2016 found that a third of 16-24 year olds were scared to check their bank accounts for what they might find. Whilst you might be able to relate to the fear, we recommend not giving into it. The more you know, the more control you’ll have over everything.
One of the handy features of Money Dashboard is being able to track and categorise your spending. Your transactions will be automatically filtered into different categories so that you can see where you’re spending the most, and when. This also includes bills and scheduled payments, so you’ll have a good overview of all movement in and around your accounts. Having this kind of insight into your finances is really important to be able to achieve financial wellness. And that’s what we’re all striving for, right?
But seriously, when it comes to paying your tax bill in January, you’ll want to be on top of things. After the festive season, January can be a rough month financially for many of us, so having your budget pre-prepared is of paramount importance.
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Using a tool like Money Dashboard can help you with a lot of things. It’s a platform that lets you pull together all your accounts with different banks and financial institutions to view all of your money together in one. They can help you:
And that’s not even the half of it. Head over to their site to sign up for free.
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