Self employed advice - tax amounts

zekeriyasmum

Hi
i would be grateful if someone could help me, my partner is self employed sole trader. i have been doing his basic account on a spreadsheet showing all incoming money (saving copies of invoices etc) and showing all outgoings (receipts etc) i put a basic calculation to the spreadsheet working out 22% tax and 8% NI contributions which leaves me with a figure which corresponds to what we have saved to pay the tax and ni bill.

this calculation is based on all his earnings, now i am thinking does he have a amount he can earn before he starts paying tax?
I looked on HM revenue website and saw this

Income Tax allowances

2007-08

2008-09

2009-10

Personal Allowance

£5,225

£6,035

£6,475
is this the same for self employed?
if so this means we have saved more than we should off, which is great!! :jbut i would like clarification. Do i only pay 22% tax on earnings above this amount when self employed? also do i pay NI 8% on all earnings

i hope all this makes sense

i hope someone can help

Thanks:T

ukric

Yes he will have a personal allowance.

8% NIC class 4 is chargeable on profit from self employment, there is an amount similar to personal allowance under which he will not pay class 4 NIC.

The amounts of the personal allowance, the class 4 NIC threshold and the percentages of tax charged (22% in your example) change from year to year. :-)

zekeriyasmum

Thanks for this information, do you know what the limits are for this year 08/09?

mrs_deadline

Tax allowances
http://www.hmrc.gov.uk/rates/it.htm

Class 4 NI bands
http://www.hmrc.gov.uk/rates/nic.htm

Is it his first year or just the first time you're doing his books?

zekeriyasmum

Thanks , yes this is his first year and the first time i have ever done the books

ceeforcat

1) When did he start trading?

2)For what period have you prepared accounts?

3) Does he use a car in his business and, if so, how did you claim?

zekeriyasmum

He started in August 08 and i started from then until now and am going to continue till end of this financial year, is that ok?
no he doesnt have a car

ceeforcat

Your first return should declare his earnings for the tax year ended 5th April 2009. This is not required until this time next year.

The tax rate you should be applying is 20% only after the initial tax free amount of 6035. (assuming he is a basic rate taxpayer.

zekeriyasmum

Oh, i didnt know that i thought i would be filling an online assessment in at end of this financial year, thanks for letting me know
and thats great about the tax free amount as it means we have more money than we thought
thanks for your help
i appreciate it
cheers

ceeforcat

O.K. - the only concern I have is - have you received a tax return for 2007/08?- if so you must file it to avoid penalties.

If not, you have nothing to worry about for a year.

zekeriyasmum

I havent received anything apart from them saying he is registered so i think i am ok
will double check all paperwork though to make sure
thanks