I'm self-employed, and looking for a formula for dividing up my income.
October 18, 2010 6:58 AM Subscribe
I'm self-employed, and looking for a formula for dividing up my income. I am currently in the UK, and just about to file my first tax return since I've been here. Once I know what tax will actually cost me in this country, I would really like to have a sense of where the rest of my money should go.
I'm self-employed, and looking for a formula for dividing up my income. I am currently in the UK, and just about to file my first tax return since I've been here. Once I know what tax will actually cost me in this country, I would really like to have a sense of where the rest of my money should go.
I have an appointment with an accountant to come around and set up my tax return, bonus points for any questions I should be asking.
Until last year, I worked in Australia and my employer took care of pension payments, tax, insurance, leave and so on. When I became self-employed and moved to the UK, I set up a basic savings account but haven't really been able to work out how much I should set aside for everything else that used to be in my benefits package: setting aside enough money to take a month's holiday each year, pension, and so on. I'd also like to look to the future - saving up for a small property, or investing.
In Australia, mine and my employer's contribution to pension (superannuation) was 17% annually, quite a large sum that I cannot afford now. I'm 31 and female. What % of income should I really be setting aside for this? 5%? 10%?
I have been been putting 1000 pounds a month aside for tax, and save between 250-500 a month (together with my husband). The rest is just dumped in the main account and comes and goes.
So: Income - holidays - sick days - insurance - pension - savings - investment savings = formula?
If it matters, my income is very close to the national average, and my income is largely steady from month to month, I consult for one organisation currently. I've seen the formula for how much you should add on when you go self-employed, I am definitely not getting that and have taken a paycut since I had a job with benefits.
I'm self-employed, and looking for a formula for dividing up my income. I am currently in the UK, and just about to file my first tax return since I've been here. Once I know what tax will actually cost me in this country, I would really like to have a sense of where the rest of my money should go.
I have an appointment with an accountant to come around and set up my tax return, bonus points for any questions I should be asking.
Until last year, I worked in Australia and my employer took care of pension payments, tax, insurance, leave and so on. When I became self-employed and moved to the UK, I set up a basic savings account but haven't really been able to work out how much I should set aside for everything else that used to be in my benefits package: setting aside enough money to take a month's holiday each year, pension, and so on. I'd also like to look to the future - saving up for a small property, or investing.
In Australia, mine and my employer's contribution to pension (superannuation) was 17% annually, quite a large sum that I cannot afford now. I'm 31 and female. What % of income should I really be setting aside for this? 5%? 10%?
I have been been putting 1000 pounds a month aside for tax, and save between 250-500 a month (together with my husband). The rest is just dumped in the main account and comes and goes.
So: Income - holidays - sick days - insurance - pension - savings - investment savings = formula?
If it matters, my income is very close to the national average, and my income is largely steady from month to month, I consult for one organisation currently. I've seen the formula for how much you should add on when you go self-employed, I am definitely not getting that and have taken a paycut since I had a job with benefits.
Best answer: Pension, at least 10%, possibly 15% - self employed people have lower NI payments and thus build up less entitlement to state pension. Pension contributions should be tax deductible.
Holiday, 1/12th if you want to take a month off. That's 8.33%
Assume 6 sick days a year? I think that depends on how likely you are to be sick. Probably something between 1% and 4% is ok.
That's 20%+ of your income allocated right there. I guess another 10% for savings if you can - you'll want a generous emergency fund as a self-employed person as your income is likely to be variable.
My income insurance premiums are about £30 a month. Life insurance is likely to be less.
These are all my best guesses - could be miles off.
posted by plonkee at 11:58 AM on October 18, 2010
Holiday, 1/12th if you want to take a month off. That's 8.33%
Assume 6 sick days a year? I think that depends on how likely you are to be sick. Probably something between 1% and 4% is ok.
That's 20%+ of your income allocated right there. I guess another 10% for savings if you can - you'll want a generous emergency fund as a self-employed person as your income is likely to be variable.
My income insurance premiums are about £30 a month. Life insurance is likely to be less.
These are all my best guesses - could be miles off.
posted by plonkee at 11:58 AM on October 18, 2010
This thread is closed to new comments.
When I was in that situation (quite a long time ago now) some important considerations were:
- If you work for one client only, will the tax authorities consider that you are really employed?
- Do you want to cover yourself against the risk of being sick and unable to work for extended periods?
- When do you want to retire, and how much would you need to retire on?
There aren't standard answers to these things, so it's best to talk with people that understand the issues and can crunch the numbers in your particular case.
posted by philipy at 10:15 AM on October 18, 2010