Please help - confused about SOA

tadsa

Went BR 18th August - really confused about how to work out SOA in relation to tax etc.

I'm self employed and so normally bill full amount and am supposed to put tax to one side. Having gone BR I am aware that I will be on a NT tax code. On SOA it states earnings AFTER tax - how does this work then?

Do I just put the full amount that I bill per month with no reference to tax? I cannot sleep for thinking about this and am totally confused as to how it works.

My outgoings tend to match my incomings almost exactly WITHOUT tax having been removed.
If I SHOULD put the full amount then once my tax code reverts to normal then surely this will show that I don't have enough to live on.

I'm sure I'm being stupid and missing something obvious but if someone could explain it to me in VERY basic terms (I'm a bit daft with this sort of stuff) then I would be really grateful.

I must add that far from feeling relieved that the court date passed without any problems, I am feeling really down and like a complete failure - does anyone feel like this and if so, please tell me it will pass!!!

Thanks in advance to all you supportive folks out there

Richard_S

Hi tadsa,

In simple terms, your SOA is showing that your expenditure is greater than your income. What you're saying is that if you were employed you'd only be able to pay your bills if you didn't have to pay tax and N.I. Clearly, that's not a situation that you can live with because you've got no access to credit to smooth over the shortfalls.

Regardless of whether you're on an NT code or not, you've got to balance your domestic budget, after allowing for deductions. Have you posted an SOA on here so people can advise on ways of achieving that? I know its not easy, we struggled for months to adjust to a "new reality" where the only funds we'd got were cash in hand and in the bank.

Regards

Richard

debtinfo

Hi tadsa, you are only on a NTcode if the HMRC tell you that you are, which i do not think that you will be. You need to contact HMRC immeadiatlly as you are starting a new period of self employment and ask how your tax will be handled

tadsa

But Richard - how does anyone NOT get an IPA then? Surely if they can afford to live when they are on a normal tax code then an IPA is definitely going to be enforced when you are on NT tax?

I appreciate your advice - I'm just being dumb?

And debtinfo - could you tell me why you think I wouldn't be on a NT code?

Getting more confused now!!!

debtinfo

you start a new business after the bankruptcy, it is not a continuation of the previous business. The tax liability for the old business is included in the bankruptcy, from the date of the bankruptcy you have a new tax liability which the OR will not collect and that you will pay in the normal way to HMRC

Hope richard does not mind me answering for him - The NTcode that PAYE people get is not to add to your income but is instead collected by the OR. As Richard says you need to budget to live within your net income

fiveyearplan

A lot of people don't go on a nil tax code - I didn't. If you are self employed and pay your tax yearly anyway it shouldn't make any difference as you are supposed to save it all and pay it, if you do get a nil tax code you will just be paying it somewhere else - you don't get to keep it whichever tax code you're on.

tadsa

Ok - I THINK I'm getting there - thanks for all the help so far.

How do I work out my net income then from a wildly fluctuating income?

Also, considering that I only went bankrupt on 18th August and tax year runs until start of April 2010, I can't average it out over a full year can I, but will doing it over 8 months?

Is this incorrect?

How do you guys get to know so much????

debtinfo

you need to put about 20% of your revenue away for the rest of the year. at the end of the year when you do your tax return it will be for the period 18 Aug 2009 to 6 April 2010

tadsa

That sounds like quite a lot - is the single person's tax allowance not applicable with BR people then? Also the next £2K odd is at 10% isn't it?

debtinfo

Personal allowance is about £6,400 after that used to be the 10% tax bracket but this was removed a year ago and the 22% main rate was reduced to 20%. The reason i say 20% of all income is a rough guide and includes national insurance contribution as well

fiveyearplan

I think the only difference for your next tax return is that it will be from the period 19 Aug 2009 to 6 April 2010 instead of the full year. You will be allowed whatever deductions/allowances as normal.