Self-assessment: have I got it right?

tax_rookie

Hi there,

I am due to complete a 07/08 self-assessment (obviously by 31st January 09 now that the paper deadline has passed)

I get paid through an umbrella company and haven't had any tax deducted. My gross earnings for that year was £26,445 (with no deductions)

Does the tax free threshold apply for self-employed? If so, am I right in saying it was £5,225 for the 07/08 tax year? Meaning I'd have to pay tax on £21,220?

From what I've heard, I should allow 20% of my gross earnings to be paid in tax so that means I should owe £4,244. Please tell me if this is right?

I also understand that I have to pay the statement of account for the 08/09 tax year - 50% of the 07/08 return on jan 31 and another 50% on July 31? Meaning I'd owe £6,366 in total on Jan 31 and then another £2,122 on July 31. Yes/No?

Not sure what role NI deductions play but class 2 deductions have been taken out every month via direct debit (about £9-12 per month I think)

Sorry for all the questions and apologies if I've made anyone confused! Just wanted to see if I have got this right, before proceeding with completing my return online - might get an accountant to do it just to be sure!

Thanks heaps

trevormax

The tax free allowance applies to everyone be they on PAYE, self employed, retired or not even working. You are correct in saying you get the PA of 5225 for the 07-08 tax year. Assuming there are no expenses or deductions to add to your code, you will probably be taxed as follows for 07-08:

Gross £26,445 less PA 5225 = 21,220 taxable.

@ 10% lower rate 2230 = 223
@ 22% basic rate 18990 = 4177.8

Total due £4,400.8

You are correct in saying your first POA for the 08-09 tax year is half the previous year so by 31/01/09 you will be expected to pay around £6,601.2. If you are expecting to earn less in the 08-09 tax year (something you will probably know by 31st Jan 09) you can elect to reduce your payments on account to prevent you from paying too much tax.

Im not 100% up on NI for the self employed currently sorry.

tax_rookie

Great, thanks for that trevormax.

Can you please explain how the 10% lower rate and 22% basic rate works? What is the most you can earn on the 22% rate? I ask this as, since the start of the 08/09 tax year, I've been earning considerably more money.

My gross earnings at the end of the 08/09 tax year will be in the vacinity of £45-50k (again, with no deductions taken) so what % of tax should I allow for then? That will hwelp me forecast how much I should be putting aside.

Thanks again

payless

get paid through an umbrella company and haven't had any tax deducted.

I thought this system meant the umbrella co sorted out PAYE, and paid out in net pay or divs ( which may have a tax liability )

tax_rookie

I may not have the correct jargon right re: if it is an "umbrella company"

I am employed by a recruitment agency and get paid via a set-up called Futurelink, who pay me my gross wages, minus an admin fee of around £25-30 per week

Stompa

I believe you'll also have to pay Class 4 NI contributions on £21220 at 8%, so £1697.60. I think this gets added on to the £4,400.80 (i.e. £6098.40), and that you'll have to pay this +50% (i.e. £9147.60) by Jan 31.

Why not try plugging your numbers into the online form. It'll do the calculation for you without requiring you to actually submit the form just yet (and it provides a breakdown of how the calculation was done).

payless

there's loads of programns taht will do teh calculations for you Ftax, taxcalc or even HMRC own http://www.hmrc.gov.uk/sa/software.htm

tax_rookie

I tried looking at Ftax and taxcalc but I think you have to pay to download software?

Is there a quick link someone can send me that will work out my tax for me before I submit this return?

ALIBOBSY

If you are paying via an umbrella company they normally take all you tax ni at source or at least do the calcs for you. You are treated as an "employee" of the company and taxed as PAYE. The whole point of paying an admin fee (usually between £20-£30) is for them to do the work.
In other words what is the admin fee for? If all they do is submit/collect your invoices it would save alot to do it yourself.

ali x

Quentin

You don't base your tax liability on your "gross earnings".

You need only pay tax on your profits. You may think it worthwhile getting an accountant to help you over this.

toby_puppy

Tax calculation 2007/08
Self employed income
Other income

Deduct
Personal allowance 5225
GROSS Pension Contributions _________________

Income tax
Lower rate at 10% limit 2230
Standard rate 22%
Standard rate limit 32370_____________
Higher rate 40%

Class 4 nic
Self employed income
Less lower limit 5225
Subtotal
Liable at 8% max 29615
Balance at 1% …………………………….