Clueless about tax? Here’s everything you need to know before January 31st
Tax is one of those parts of personal finance that we all find a bit confusing, whether we’re self-employed or on a salary – but it’s also something that it’s really important to get right, if you want to avoid financial anxiety. When I first moved from an employed role to working for myself, tax was the thing that frightened me the most, and I clearly remember not having a clue how much I should be paying in tax throughout my years in a salaried role, too.
To try to clear up some of the things that might be playing on your mind, I caught up with chartered accountant Rachel Martin, who uses her Instagram account, @accountant_she to make accountancy and tax more approachable and digestible, with informative posts and reels in her own unique style.
How can people in full time employment make sure that they’re on the right tax code, so that they don’t get stung with an extra tax bill?
“HMRC offer a fantastic online service called personal taxes online which gives individuals the opportunity to check their tax code online, see what information HMRC have received from their employers through payroll, claim a tax refund directly into their bank account, check how much tax they’ve paid over the last 5 years, update new contact details so HMRC can always contact you and you can also manage tax credits online too! It’s honestly the best way to keep a close eye on your tax code and it’s actually just super interesting to have that information and to see behind the scenes!
This service is available to you immediately too, you don’t have to wait for a letter to come through the post you can set it all up and access the services immediately by answering some security questions, another win!”
How do you know if you need to fill in a self assessment form? If you’re self-employed, it’s obvious, but for side-hustlers and people with other income (cash tips for hospitality, rental income, capital gains on investments) it’s not always as clear.
“As a general rule, if you receive income that is not taxed when you receive it, you should complete a self-assessment tax return. Examples of income that you might receive that is not taxed at source are sole traders, directors of limited companies, rental income from properties you own, income from other countries and other investment incomes.
There’s one super handy allowance that means that if you’ve earned less than £1,000 in property income or from a small trade or side hustle (like an Etsy shop during the pandemic!) then you do not have to report this to HMRC. If you think you might qualify for this allowance, it’s called the trading allowance.
HMRC do have a super useful online tool where you can answer some simple questions and they’ll tell you if you need to complete a self-assessment tax return!”
Do you have any tips for how people not paying all of their tax through PAYE can budget for this throughout the year?