31st January isn't just the self-assessment deadline; it's also the day self-employed people have to pay a large tax bill. So where should they be keeping that money over the year?
Freelancers and other self-employed workers will be aware of next week's looming deadline: 31st January is the date they have to pay the remainder of last year's tax bill and make the first payment on account for the current tax year.
This means you could be looking at a big bill next week – and it pays to have the money to hand.
So how can self-employed workers get organised about tax payments?
I've been freelancing for nearly 10 years now and one piece of advice I'd give to any other freelancer is to save money for your tax bill as you go along.
That means siphoning off a set percentage of every pay cheque you receive (no matter how skint you are) into a separate account. Get in the habit of doing this and you won't go wrong. The big question, of course, is how much do you need to save?
The HMRC website contains a handy ready reckoner where self-employed people can enter their estimated weekly or monthly profit and it will calculate roughly how much you need to put aside each week or month. The calculation takes into account your personal allowance and whether your income means you'll be a basic- or higher-rate taxpayer.
Having potentially thousands of pounds in savings at certain points in the year means it's a good idea to look around for the best savings rates. However, there's one potential issue: you'll need to be able to get to the money twice a year to make your payments to the taxman.
There are several types of account that could be a good home for your tax bill money until the time comes to hand it over to the HMRC – we look at the pros and cons of each.
Looking for somewhere to stash your money? Check the latest savings rates
Overpaying your mortgage
If you have a flexible or offset mortgage then one option is to overpay it each month then "borrow back" the money later on to pay the tax man.
If your mortgage interest is calculated daily, any overpayments you make immediately lower the outstanding mortgage balance. This means you can pay off your mortgage quicker and pay less interest overall.
This option is tax-efficient as you won't be paying tax on savings interest like you would with a savings account.
However, check your mortgage small print before making any extra payments. Most mortgage lenders include a clause saying that flexible mortgage features, such as borrowing back, have to be approved by the mortgage lender. So there is a chance your lender will refuse your request when the time comes.
Compare the latest mortgage rates
Regular saver accounts often offer decent interest rates. For example right now you can get 6% with First Direct. However you usually have to save a set sum each month. There will also be a monthly maximum amount you can save per month – £250 is standard, but it goes as high as £500 with some accounts.
So, regular saver accounts are only suitable for freelancers who will save the same amount each month.
Another downside is that there will be restrictions on withdrawals – some accounts only allow one per year. For this reason this type of account alone is not likely to work for workers who pay tax twice a year.
For more information read The best regular savings accounts
Easy access savings accounts
I save my tax bill money in an easy access account and shop around for the best rate. It's probably not the best-paying option on this list, nor the most tax efficient, but it's easy.
Easy access accounts generally let you pay in and take out money whenever you want so they're perfect for savings you'll need to access in January and July.
Compare easy access accounts
If you haven't used your ISA allowance then look for a Cash ISA which allows instant access to your money. ISAs are tax-efficient as you're not taxed on the interest you earn.
Fixed rate bonds
Fixed rate bonds generally offer higher interest rates than easy or instant access accounts – but the bond's terms and conditions mean your money will be tied up for a set period of time. With some bonds you may be able to make a withdrawal, but there will probably be a heavy penalty.
Most bonds only allow you to make one deposit rather than drip feed money each month so they're generally not a great option for all your tax bill money – although you could potentially save some of it in a six-month or one-year bond that matures in time for you to pay the taxman.
Compare fixed rate bonds
If you fancy a flutter, you could invest in some Premium Bonds.
Premium Bonds are a type of savings account but instead of paying interest, your £1 bond numbers are entered into a monthly draw. If you win you'll get a prize of between £25 and £1 million, tax-free.
As well as being able to invest lump sums you can also buy bonds through a regular monthly payment by standing order.
The latter means you can plough your tax bill money into Premium Bonds and hope you get lucky at some point. If you do, who knows – you might be able to give up work for good? If you don't, you can access your money whenever you like and pay your tax bill when it's due.