How do I calculate my wage if I'm self employed?

walkinthepark

I'm interested in becoming self-employed. But I'm not sure how to determine the level of money I pay myself? Is my wage the entire profit I make once all my costs and allowances have been taken off or is my wage a determined portion of my profits?

Another relevant question is which bit of my profit am I taxed on - all of it or just the bit I'm taxed on? It's so confusing.

I'd really appreciate any advice anyone can give me. Thanks.

CLAPTON

if your SE then it works like this
you are taxed and pay NI on your profit
your profit is the difference between your income (turnover) and allowable expenses
you don't have a wage; you are just taxed on the profit

you have the same tax allowance as any one else i.e. 6475

Chinkle

I assume you mean you are going to work for yourself as a sole trader, registering with HMRC and completing annual self assessment returns.

Your tax is calculated as your profits minus your outgoings. Roughly set aside 30% of your profits to cover tax and NI. After that its down to you to either pay yourself what is left or whether to leave some or indeed all of that in your business to reinvest for the future. Makes no difference for tax purposes.

HappyMJ

Your wage is your profit. In the first year that's usually around zero due to the amount of setup costs that you can claim in setting up the business. You will be taxed on the entire profit.

As an example I pay myself around £30 per week for personal expenses as a wage and I also claim Working Tax Credits which helps pay for my personal expenses. Any travel and costs that I can offset against profit is paid for by the business. Travel is the biggest expense at 40p per mile so I also make a payment from the business account to my personal bank account of an amount that averages around £80 per week to pay for any car expenses. The insurance, mot and fuel don't usually come to that so I keep the rest saving up for a newer car when this one needs replacing.

walkinthepark

I understand. Thanks for making that clear.