Estimating your Self Assessment tax before you file
Filing your return tells you what you owe. The problem is that it tells you at the point where you can't do much about it. Estimating earlier, as soon as the tax year ends or even during it, turns tax from a bill you react to into a number you plan around.
Why estimate early
- To budget. Knowing the figure in April, not January, means you can set money aside gradually instead of scrambling.
- To plan a pension contribution. Contributions have to be made before the tax year ends to count for that year. You can only decide sensibly if you know what your tax looks like first.
- To avoid the payment-on-account surprise. Your first full year often means paying about 150% of a year's tax at once. Far better to see that coming.
- To check the return itself. An independent estimate is a sanity check. If your filed figure is very different, something's probably been entered wrong.
What you need
A useful estimate needs just a few numbers: your self-employment profit (income minus allowable expenses), any employment salary, and any dividends, savings interest or rental income. If you're mid-year, use your figures so far and project forward.
How to do it
You can do the maths by hand using the step-by-step method, but it's fiddly once National Insurance bands and the Personal Allowance taper are involved. The quicker route is to put your figures into the estimator. It applies the correct bands, allowances and NI rates for the year you choose and shows the result broken down line by line, in the same order as an SA302. Change the year and the rates change with it, useful because the Class 4 rate and Dividend Allowance have both moved recently.
Make it a habit during the year
The best time to estimate isn't after 5 April. It's throughout the year. Checking every quarter, as your profit builds, tells you whether to increase what you're setting aside and flags in good time if you're drifting toward a threshold like £50,270 or £100,000. A five-minute check each quarter beats a nasty surprise in January every time.
Then set the money aside
An estimate only helps if you act on it. Once you know the rough figure, move that share of your income into a separate account as you earn it. When the January deadline arrives, paying the bill becomes a transfer rather than a crisis, and you'll already have the number you need to file confidently.