Workers struggling to budget due to drastic cost of living increases
According to research conducted by GoSimpleTax – a provider of online tax return and self-assessment software for the self-employed – 15% of the UK’s 4m self-employed population don’t have enough money put aside for their next tax bill.
The survey of 500 self-employed workers reveals a worrying trend ahead of the self-assessment deadline of 31st January 2023, which GoSimpleTax called a “tax time bomb”, and highlights issues with the tax system as it currently stands.
As well as the potentially hundreds of thousands of independent workers who can’t pay their next tax bill, millions of self-employed workers are also putting off budgeting for their tax bill until after they’ve completed the self-assessment tax return.
The survey also found that 25% of self-employed workers believe they pay too much tax compared to their employed peers. Alongside this, only 38% have a pension and 43% have no savings at all.
The findings follow an Autumn Statement which increased the tax burden on the UK’s self-employed community.
Increasingly aggressive tax regime
With a £55bn deficit to combat, the government put forward a range of measures at the Autumn Statement, including freezing the thresholds for income tax, and reducing the tax-free allowances for Capital Gains Tax and dividends. These changes are due to come into effect from April 2023.
As the UK’s tax regime tightens, Mike Parkes from GoSimpleTax suggested that the changes to tax thresholds “could plunge the self-employed into dire straits”.
“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”.
“Over half [of respondents] 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”.
When speaking with online accountancy firm QAccounting, they said it was “no surprise that many independent workers are worried about paying their tax bills”.
“With soaring inflation and a number of tax increases and freezes, it’s been another tough year for many self-employed workers.
“It highlights the need for contractors to ensure they pay the right amount of tax, and not too much. By this, I mean ensuring allowable business expenses are taking into account which, in turn, helps ensure tax efficiency.”
The importance of communicating with HMRC
If you’re struggling to pay your tax bill, it’s important that you communicate with HMRC so that they are aware of any issues or challenges that you’re facing. Failing to communicate can make the situation worse.
When you let HMRC know that you can’t pay your tax bill in full, the tax office may offer the option to set up a ‘Time to Pay’ plan, which is a payment plan for your outstanding tax bill. You’ll have to meet certain criteria to be eligible, and you can apply online via the self-assessment portal online. You can find out more on gov.uk.
Alternatively, to have a trusted accountant organise your self-assessment tax return from as little as £99+VAT, please click here.