Friday, 16 May 2014

Frugal Friday...

I was recently speaking with a fellow self-employed worker - they'd just had a nasty run in with a rather official bailiff type regarding unpaid tax, which I have to confess left me just a little bit flummoxed. I've been self employed since 2010 - and the first thing I set in place when I started out was how I intended to deal with my tax and National Insurance contributions. Each time I raise an invoice, I set aside 25% of the amount straight off the top as soon as it's paid into a separate savings account - that first quarter of everything I earn simply doesn't exist, so far as I'm concerned, and as a result my tax money has always been sitting there ready and waiting when it's become due for payment. In fact, on the amount I earn annually that figure of 25% is a bit of an overestimation, but that's fine, it just means that my tax account becomes an extra savings account, in effect.

Extra savings accounts can help you pay for fab new cameras!

HMRC aren't patient types - if your tax return isn't in on time then they fine you £100 right away, and then interest on the amount you would have been due to pay. Late paying a demand for tax? That'll be more interest then. On the other hand though, you have from April 6th to January 31st to complete the tax return - that's 9 whole months. There can't be a person in the world whose tax affairs are so complex that it takes them 9 months of solid graft to get a tax return filled in, can there now. I was late doing mine this year - it wasn't done until the first week in May. Yes, that's late by MY standards, but not by theirs - they get enough of my hard-earned, they're not having any more by way of fines or interest, thanks!

To me it's just about planning - I know that the tax has to be paid, in the same way that I know Christmas falls on 25th December every year - hence it doesn't come as a nasty surprise. We set aside money every month to put against Christmas presents for the family, I personally put aside a sum each month to cover MrEH's, and my close friends Christmas & birthday presents, too. I don't want a rude shock in January when I "suddenly" have to find money to cover Christmas - setting that money aside means that it's paid for over the year, rather than in one lump, in effect. January also seems to hold another shock for a lot of folk as they get their December pay in the bank earlier than normal.   MrEH gets paid early as well, but do you know what - WE PRETEND HE HASN'T BEEN! I know - radical eh? It's that simple though - we ignore the money until the time it would usually land. We wouldn't usually have his salary to call on until the last day of the month, so why treat it any differently just because it's in the bank account ahead of time?

Learn to look ahead...
If you want to get your finances in order, and more to the point keep them in order, then you really do need to learn to plan. Know when your direct debits go out, and how much they should be for. Know when any bonus interest rates on savings accounts or ISA's expire, and search for better options as soon as those rates drop (and if you know you'll forget, search out accounts without bonus rates in the first place, so you lose less when they fall!). Know when your contracts are up for things like TV, phone and broadband, and be ready to either find a better deal, or ring the current suppliers and tell them they're too expensive! Keep your eye out for better deals for your gas, or electricity, and if you're on a fixed tariff know when that ends too. You can join the Money Saving Expert "cheap energy club" - input all your current tariff details and it will email you when you can make savings at a level you choose.  If you have an ISA then move anything you can from your savings over to it - any money in savings that you're paying interest on is being taxed twice - and lets face it, once is bad enough. No, your savings might not earn that much interest, but what they do earn belongs with you, not the taxman! Know your insurance policy renewal dates, and make a note a month ahead to start searching for new deals - not just for home insurance, but also for car, and pet, too. Remember to go through cashback sites where you can too, and always avoid just letting things auto-renew.

You can take your planning further even than that too - if you know you want to go on a holiday next year, costing £1200, then it's not rocket science to know that if you put £100 a month into savings each month until you go, that's the holiday paid for and no nasty surprises to come on the credit card when you get back. Likewise, work out what your car costs you to run over the year - tax, insurance, servicing, MoT, and add a bit for depreciation, tyres etc - and set aside that amount every month too - just imagine how good it would feel to pay your insurance in one go rather than having to spread it over 12 months - it's cheaper paid in one go, too!

Nice view...
Of course you don't need to just remember all this stuff in your head - goodness knows I don't! When we first started trying to get our finances in order I started a notebook and wrote everything down in there. For others spreadsheets work, or even a diary kept specific for the purpose - one big enough to write down renewal dates and makes notes about things too. So tell me - how do you plan ahead for stuff? Or do you just deal with the bills when they arrive? And what about that dreaded "6 week long" January - is that a problem for you?! ;-)



Anonymous said...

I have renewal dates in my diary and a reminder about 2 weeks before so I can start looking around.

As for my tax return I keep very good accounts. I know exactly what I have earnt and how much of that is profit. So I know roughly how much my tax bill will be. Thankfully my "tax savings" account is the best kept of my savings account so the money is always there.

Sometimes I have a little extra in there too and well that's just a bonus :D

Gill H said...

I have 3 separate tax returns to do, and generally manage to keep all the plates juggling. One for myself as self employed, the one for my old limited company (it was a condition of the job that it was set up this way) and one for a sole trader (for craft fairs) and its the Ltd company one that caused me grief. I came unstuck when I stopped trading. HMRC then 'estimated' my income, charged me the tax, and charged me interest when I didn't pay it straight away. Even though I submitted dormant accounts. Then they fined me for not submitting VAT returns, or PAYE for a dormant company.

No, you're right, they're not patient!

BarnsleyHistorian said...

I have all our bills on direct debit and all the direct debits in my Outlook calendar (well I might as well use it for something now I don't work, it would be really empty otherwise). We have a 123 account which does payback on dds do we get £8 or so each month from that ... better than the interest rste! I keep a running tally each month on a sticky note on my desktop, all purchases go on the ASDA credit card ... 1% and 0.5% cash back depending on whether you use ASDA or not. I pay that off every week, the rule is don't buy anything we can't afford. We only use the card for the cash back.

We just pestered npower and got our dds reduced based on our usage. The water meter fitted at house #1 has got us £100 back this month, and a substantial reduction in the dd.

£50 saved each month for those car bills, plus annual bills like the AA, and the service on our boilers (two, still two houses!)

With the 123 account the pay higher interest on money left in the current account so all my savings are on paper, I don't look at the top line, just the figure at the bottom each month. So for example this month we have £180 left for diesel and food and anything else. We have just paid off the old credit card (run up when we moved house in false confidence nearly three years ago) so next month we will be £50 better off. Hooray!

If we ever sell house #1 *sigh* then we might be able to afford clothes and holidays again.

BarnsleyHistorian said...

Apologies for typos in the above, one finger on the tablet in bed, sorry.