A poll of freelance workers has found that one in two don't budget for upcoming tax bills until they complete their tax return, leaving many without enough funds to pay in full.
Over half of the UK's four million self-employed people wait until their tax return is complete before they budget for their upcoming payments, according to a new survey of UK self-employed workers conducted by GoSimpleTax. A further 15% say they do not yet have enough money set aside for their next tax bill.
The UK's self-employed contribute an estimated £303 billion to the British economy each year, according to The Association of Independent Professionals and the Self-Employed (IPSE). But these findings suggest that the current system is making it hard for self-employed workers to budget for tax appropriately.
The survey has also found that:
- A quarter say that self-employed people pay too much tax compared to those in employment;
- Only 38% of self-employed workers have a pension;
- Only 57% have any savings.
Mike Parkes, tax expert at GoSimpleTax, said: "The UK's four million self-employed people are facing a tax timebomb. Over half say they haven't budgeted for their next tax bill which will be due at the end of January 2023, while 15% have tried to budget but still face a shortfall. When we also consider that two in five don't have any savings, this presents a huge problem."
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Self-employed squeezed by frozen tax thresholds
The recent freezing of tax thresholds is putting more pressure on self-employed taxpayers, says Parkes. "Frozen tax bands and allowances effectively mean no inflationary increases in the tax-free personal allowance, making it even harder for the country's self-employed to set money aside for future tax bills."
Making Tax Digital for Income Tax
The government is pressing ahead with plans to adopt Making Tax Digital for Income Tax from April 2024. It means that all sole traders and landlords with a turnover in excess of £10,000 will need to keep their accounts electronically and submit quarterly returns to HMRC, followed by an end of period statement at the end of the tax year. Currently, these people need only file a single return, the annual self-assessment tax return, due on 31 January each year.
"When we remember that this group of people often feel they were excluded from support during the COVID-19 pandemic, it is even more important that the government gives a true recognition of the scale of the impact that tax band freezes will have on the country's self-employed," said Mike Parkes.
Making Tax Digital (MTD) is already in place for all VAT-registered companies, who must use approved software to submit their VAT returns. Plans to introduce Making Tax Digital for Corporation Tax are currently subject to a government consultation.
Written by Rachel Miller.