Self Employment Tax Questions

Mudgey

Hi guys,

I have just come across this website after trying to search how to calculate tax for my wages from my business. I feel the HMRC website is not the most user friendly website and there is such a vast amount of information there it is easy to get overwhelmed!

So a little about me:

I am 23, I am self employed and I registered mid october. I earn money through freelance CAD work and have set up an online store & an ebay store selling my own designed aftermarket heaters & parts for kit cars, race cars etc. I run everything from my flat to keep overheads as low as poss.
I have invested 7k into acquiring stock and getting advertising.

I have a couple questions on things I am a little confused about and I hope you guys can be kind enough to answer my questions and enlighten my path!

Questions:
1. I have invested 7k into my business, how can I gradually extract my 7k without paying any tax? Is this possible?

2. I would like to start setting a side Tax on my profits. However I have been using my profits to buy more stock and so my expenditure per month has been the same as payments in each month. How do we determin the profit without working out the margins on every individual transaction? Parts costs fluctuate, the payment I get is different depending on how the buyer pays and where he bought it from... there are so many variables to take into account.

3. I have been paying petrol out of my business account, and have bought the odd computer part for my CAD PC. How does this effect my tax?

4. I am not paying VAT yet but I may end up breaking the barrier by the end of the year, if so will I have to charge VAT on my CAD invoices?

5. Lots of people have told me that Tax is calculated on taking away my expenditure from money in on my tax form. I cant believe this is correct as if you just keep re-investing you then pay no Tax, I can't see the government allowing this!? Do I instead have to calculate how much stock I currently have at a price I payed for it and deduct this from my starting investment?

I would like to adjust my spreadsheet to give me a running total of tax I need to transfer over to my tax saver account.

Many thanks in advance.

Regards,
Mudgey

PlutoinCapricorn

The first port of call for people considering self employment of any kind is https://www.businesslink.gov.uk. You have invested a lot of money in your business, so need information that does not apply to service only sole traders with no startup or stock costs such as me. Others on MSE may be in your position.

I am not VAT registered, but know that once you register, you must charge your customers VAT. You can register even if you are below the threshold if you are buying a lot of items with VAT on them. Some people register for this purpose at startup, then de-register. Charging VAT may make you less competitive pricewise.

As you registered last October, your first self assessment will be for FY 2009/10 and you can submit this from late April/early May until January 31st 2011. This gives you some time to learn the rules. Everyone on MSE recommends filing online and in plenty of time.

As you say, the general rule is that you are taxed on your profit, which is your self employment income minus allowable expenses. There are also capital items, which must be depreciated. You can get free workshops where all this is covered.

fengirl_2

In answer to your questions:
1. It's your money, you just take it. As a self employed person, you pay tax on your profits, NOT on your drawings.
2. Its quite difficult to calculate this, especially when you are starting out. You can only recognise the cost of purchases in the year in which they are sold. You could try producing management accounts each month to show your monthly profit and then add previous month's to show cumulative profits. But dont forget that there will be adjustments post accounts when you come to self asses, eg private useages and capital allowances.
3. There are two ways to account for car costs - either take into account all the running costs of the car, not only petrol, and then add back the privtae proportion when you come to self assess, OR, use 40p pm to cover business miles up to 10,000, or 25p pm thereafter. You can only choose one method, but is you are VAT registered, you have to use the first.
4.Yes
5.As per 1 above, you can only include in your accounts the cost of sales.