If there was one thing I really sucked at in the last financial year, it was to plan for in advance for paying the self-assessed portion of my income tax liability. The result — I ended up paying a big chunk of of money as income tax due plus penalty plus interest just before filing my income tax return. Sucks! Really.
Thanks again, to the parked emergency fund, which hadn’t been used since quite some time, I was able to bail out of the situation without a hassle.
Going forward though, here’s my simple strategy for handling this situation —
- At the start of each financial year (that is, in April), assess, and for all practical purposes this will be a close enough approximation, the self-assessment income tax due. But for this financial year, I’ll have to start from September.
- Treat this as just another “annual expense.” My approach for saving towards annual expenses has worked very very successfully over the past few years.
- Pay the saved amount in chunks at the start of each quarter so that some of the weird advance income tax rules are complied with.
- I will either end up overpaying a bit or underpaying a bit — since my assessment of the income tax due is an approximation. And this should be OK because if I overpaid I’d later get a refund and if I underpaid I can pay the final balance due without attracting any penalty plus interest.
That should work. But how about you? If you’re in the same situation, how are you handling things?