Self-employed tax calculation seems high!

EMMAUPTON

Hi there,

Can anyone advise on whether my accountants tax calculation is correct as it seems higher then expected;

My husband is self-employed and had no tax to pay for his first year 2006/2007 as his expenditure was so high.

This year the net profit is £12,951 for 2008 and we have a figure of £4,800 carried over for 2007 net profit!?

The accountant has calculated the amount payable on 31/1/9 at £3618.45 and payable on 31/7/09 at £1206.15.

I'm pretty clueless regarding accountancy matters, and can't work out how these figures are calculated.

But by my reckoning it should be calculated as;

£12,951 -£5225 (personal tax allowance)

equals;

£7726 - 30% (22%income tax, 8% NI class 4) = £2317.80.

Does anyone know if the amount given by the accountant is for paying in advance of next year as my husband was really only expecting to pay around £2,500 per year in tax. Anymore then that and it really is not worth him being self-employed!

Any help would be greatly appreciated, we are being sent a copy of the self-assessment form which may explain more, but that will take a couple of days.

Thanks

Emma

Cook_County

Emma - we don't know if your figures are accounting profit or tax profit, any other income that arose, any carried over losses for Class 4 NIC purposes etc.

There is not enough information. Your figures overstate NIC & ignore payments on account.

Mikeyorks

EMMAUPTON wrote: »

The accountant has calculated the amount payable on 31/1/9 at £3618.45 and payable on 31/7/09 at £1206.15.

From those figures ..... the payment of £1206 on 31st July 09 is the 2nd payment on account for the following year. So it is logical / the arithmetic computes that the accountant has included the 1st payment on account in the figure due 31st Jan 09. This will be an equal figure of £1206. So the 31st Jan figure, as provided, breaks down to :

• £2412 for year to Apr 08 (2007-08) ...... due 31st Jan 09
• £1206 1st payment on advance of 08-09 ..due 31st Jan 09 (total £3618)
• £1206 2nd payment on advance of 08-09 .. due 31st July 09

Suspect from your post that you're actually aware that wef the end of his first full year of SA .... he has to make (2 x 50% of the previous year liability) payments on account of the next year liability? You can apply to reduce the 'on account' payments if profitability is in decline? But your accountants advice on that is essential as you will be charged interest on any shortfall if you get it wrong.

Flying_Scotch_Man

Hi I am employed and self employed at the same time and my taxable income from self employment worked out at about £8300 I cant believe that the government wants 30% of this for tax (22% + 8% NIC). I already pay the weekly £2.60 NIC stamp and a load of NIC via my employed income. I asked whats the 8% NIC used for by the revenue (is for my state pension or what?) but no its just extra tax for being self employed. Why do I have to pay this tax or should I be paying this nic tax at all ? I read somthing about giving myself a salary from the little business so that it counts as an expense. I agree with the thread poster 30% income tax is just too much for someone starting a business imagine if we had 15% vat to add on thats 45% so you really have to be making twice as much as you need to make a living with the government claiming almost half your income then giving it straight to the banks that are sinking due to thier own bad decisions and greed. Sorry if I offend anybody but I may have to rely on my self employment as the company I work for are cutting back same as the rest. Can anyone help?

EMMAUPTON

Thanks for your reply Mikeyorks greatly appreciated, now I know for sure I am simply paying part of my tax in advance I can relax.

I know next to nothing about tax matters and like the FlyingScotsman above was shocked to see my husband would be paying 8% NIC class 4 in addition to his class 2 contributions. I really think during these difficult times the government should be taking measures to help small businesses survive. It seems unfair that in my line of work I get a full range of benefits such as full sick pay, civil service pension, holiday pay etc yet the sole trader has to find this amount themselves and pay extra NI contributions as well. It doesn't make sense!

ceeforcat

Flying_Scotch_Man wrote: »

Hi I am employed and self employed at the same time and my taxable income from self employment worked out at about £8300 I cant believe that the government wants 30% of this for tax (22% + 8% NIC). I already pay the weekly £2.60 NIC stamp and a load of NIC via my employed income. I asked whats the 8% NIC used for by the revenue (is for my state pension or what?) but no its just extra tax for being self employed. Why do I have to pay this tax or should I be paying this nic tax at all ? I read somthing about giving myself a salary from the little business so that it counts as an expense. I agree with the thread poster 30% income tax is just too much for someone starting a business imagine if we had 15% vat to add on thats 45% so you really have to be making twice as much as you need to make a living with the government claiming almost half your income then giving it straight to the banks that are sinking due to thier own bad decisions and greed. Sorry if I offend anybody but I may have to rely on my self employment as the company I work for are cutting back same as the rest. Can anyone help?

Hi – you raise a couple of points.

Firstly the Class 2 stamp which you pay specifically counts towards your state pension entitlement. A lifetime of paying this will entitle you to the BASIC PENSION only. The additional NIC is Class 4 and this is supposed to contribute to the state social fund, healthcare, social security, roads and the like!

Employed people pay 11% as you are aware and it would be unfair (it is said) for self employed to pay substantially less.

You absolutely cannot pay yourself a salary and expect it to be counted as an expense. It is a personal drawing and in no way related to the profits of the business.

You mention that you are also employed and, presumably paying Class 1 National Insurance contributions. There is a maximum that anyone can pay in contributions (not withstanding the 1% surcharge which came in a few years ago). This is an extraordinarily complicated calculation. As a very rough rule of thumb – if you pay higher rate tax at your employment you may well be able to avoid paying any NIC at your self employment by claiming deferment. If not you will continue you pay Class 1 at your employment and Classes 2 and 4 at your self employment and hope that, if you do pay the maximum, a refund will ensue. Do not hold your breath on this one as the contributions office is notoriously slow.

wobstyr

Hey Guys,

I found a website that does this all for you and it costs a tenner a month, all you need to do is put in your invoices, and expenses and it will work out what you owe the tax man, its brilliant.

it will even work out two income streams, so if for instance you are employed on a full time bases and pay PAYE, you can put a seconf income "self employed" into the system and it will workout your tax, minus what youve all ready paid in PAYE.

Its the way to go, no more expensive accountants.

Unfortunatly i am not allowed to post links on this forum, so if you want to find it. cut and paste this into google, incude the quotes and look for the 4th one down. "self-employed-tax-calculator"