Thousands of self-employed workers and freelancers are finding their tax bills are higher than they expected this month
Thousands are reeling this January after checking their Self Assessment tax bill and finding it’s far steeper than anticipated – with many mistakenly thinking they’ve made a catastrophic mistake.
For those who are self-employed, freelancers and small business proprietors, the shock typically arrives when they access their HMRC account and spot a figure that seems to have jumped dramatically from the previous year. However, experts insist that in numerous instances, nothing has actually gone wrong.
Rather, the culprit is how Self Assessment payments are structured – with some people being required to cough up not only what they’re liable for in the current tax year, but also an advance instalment for the following one. This arrangement, referred to as payments on account, can result in January’s bill encompassing multiple tax charges hitting simultaneously, causing the overall sum to appear frighteningly steep.
Lee Murphy, Managing Director of The Accountancy Partnership, explained that bewilderment surrounding how the mechanism operates is among the most frequent triggers for taxpayers to panic upon viewing their bill.
He said: “People often think they’re paying for one year, but January can include more than that – you could be paying what you owe for this tax return, and an upfront payment towards your next bill. That’s why the total can look higher than expected.”
Another common cause for a heftier bill is an uptick in earnings throughout the past year – something numerous people overlook until they witness the final tally. “If you’ve had a stronger year than last year, your tax will naturally be higher and it can also affect what you’re asked to pay going forward,” Mr Murphy said.
Even relatively minor adjustments can significantly impact the final amount owed, especially when allowances don’t work as people anticipate.
“Small changes can have a bigger impact than people realise. It’s worth double-checking your personal allowance position and whether anything has reduced it.”
Racing against the January deadline can prove expensive. Those who rush their returns may fail to claim legitimate expenses or reliefs, pushing up what they owe.
“This is really common when people are rushing. If your records weren’t complete, you may have missed legitimate expenses and that can inflate the bill.”
Overlooked income sources present another pitfall. Interest, dividends or side hustles can slip through the cracks – but still need declaring.
“Side work, interest, dividends – it’s easy to forget smaller income streams until it’s time to add them to your tax return. Missing them can throw off the total and lead to surprises.”
Taxpayers should also verify that income details reported to HMRC by employers or contractors are correct, particularly for those paying CIS tax, ensuring they match both payslips and bank statements.
Mr Murphy advised that taking time to scrutinise the bill before settling up could make a substantial difference. “The best thing you can do before you pay is slow down for ten minutes and understand what the payment actually includes. Once you know what you’re paying for, you can plan instead of panicking.”
As the Self Assessment deadline draws near, experts are sounding the alarm that households who don’t grasp what January’s bill actually covers risk putting themselves under unnecessary financial strain – particularly problematic given that many are already grappling with squeezed cashflow at the start of the year.
