Saving for tax is about to get easier
In a recent survey, we found that 3 in 10 self-employed people consider calculating their tax to be the most complex part of running their business.
It’s understandable – tax isn’t the most straight cut system. There’s your legal set-up to consider, different tax bands based on your income as well as national insurance. And most people have to figure this all out whilst also trying to get their new business up and running. It’s a big adjustment if you’ve made the leap from traditional employment, where this was all done for you.
That was one of the main reasons we built a tax estimate into the Coconut app quite early on. We want to remove the stress and ambiguity related to taxes. But we’ve got more work to do!
Knowing how much tax you owe is just one part of the problem.
Over a quarter (27%) of self-employed people surveyed either overestimate or underestimate how much money they actually need to set aside to pay their tax bill at the end of the year.
The problem is clear if you happen to under-save; more stress come time tax getting the money together. But there’s also a lost opportunity when you over-save; the opportunity to invest more throughout the year in your business.
So actually, setting the right amount of money aside to pay your tax bill is key. This is something we’ve been focusing on over the last few months and we can’t wait to share it with you.
Our vision for Saving for Tax
What we’re setting out to do is very ambitious and it will take us well into 2021 to achieve, but we also want to get it right. So we’re breaking it up into smaller chunks that are released over time, making sure we get your feedback along the way.
Here are some of the challenges we uncovered when speaking to customers about how they do this at the moment:
- There’s a lot of uncertainty around how much to set aside. Whilst Coconut provides you with a tax estimate, there is no guidance on how much money you should actually be setting aside, and when to ultimately pay your bill.
- People have cobbled together solutions involving spreadsheets (over 37% of those surveyed) and multiple bank accounts that move money from one account to another so they can leave it untouched.
- More often than not people are surprised (although Coconut customers are less so because of the live tax estimate ) by how much they owe HMRC.
We really believe it doesn’t need to be this complicated and our approach is simple:
- We’ll let you know how much money you should be setting aside and automatically move that money to a tax vault for you, in a way you always have control over.
- You’ll never have to worry if you’re setting aside the right amount.
- You don’t have to remember to do it; we’ll do it for you and let you know that it’s happened.
- If you don’t have a current account with us, that’s also fine. You’ll be able to do this from any bank account in the UK.
- You’ll be able to pay your tax bill, on time and without worry.
All of this from within the Coconut app.
How we plan to release the Saving for Tax features
- First to launch will be the new Tax Vault, where you will be able to manually set money aside based on your tax estimate. This will only be available to Coconut current account holders and those who have opted in to our beta testing programme.
- Shortly after that we’ll roll the feature out more widely (to all Coconut Current Account holders on the Grow plan) and launch CoPilot. CoPilot is our smart saving mechanism that will start moving money into your Tax Vault based on your income automatically, or by prompting you to do so if you choose to do it yourself. Either way, we’ll always let you know how much is going to be moved and give you the opportunity to amend or skip a ‘save’.
- We will then extend CoPilot to bank accounts beyond Coconut. So, if you choose to bank with Barclays, Starling or any one of the 20+ banks we integrate with, you’ll still be able to take advantage of our Saving for Tax experience.
- We have plans to continue to improve the accuracy of our tax estimate, including building support for Payments on Account and manual transactions.
- And finally, we want to make it possible for you to pay your tax bill directly from within Coconut.
We’re really excited to get this feature to all of our customers and we can’t wait for you to give it a try.
If you have any questions, would feel free to drop us a line via the in-app chat or head over to the Coconut Bite community.