SelfEmployed and ISA

computerbar

Hi again
Just wanted to make sure.

I am self Employed. The money i invested in ISA is profit from my selfemplyment. Do I have to pay tax on it first (too) to invest £7000 in ISAs?

Thanks

Stompa

I'm not sure I see what the ISA has to do with it. If you're self-employed then you should be paying tax on your income.

computerbar

I know what you mean. you are right I have to pay tax on income.

one of my friend just confused me saying that thats what it means. you keep your INCOME in ISA and do not pay tax. I knew he was wrong but still i thought lets double check with you here.


What I think. As a Selfemployed any money you make is accounable to be taxed first and whatever is left is your SAVINGS (Net/Retained profit) and can only use that money to invest.

Because all employed people get their wages (taxes already deducted) and then invest that money in ISA.

Correct me if I am wrong.

Thanks

ReportInvestor

That sounds about right.

You can invest your post-tax income with no worries.

The income from that investment may subsequently attract extra tax (above the 10% dividend tax credit or above the 20% basic rate savings account tax) only if you are close to or above the higher rate tax threshold.

computerbar

could you please explain this by example. Say I have earned £20000 OR £45000 in year and have ISA too.

".........attract extra tax (above the 10% dividend tax credit or above the 20% basic rate savings account tax)

Thanks

ReportInvestor

You should know if you are a higher rate taxpayer or not. It's your duty as a self employed person. It's everyone's duty in this age of "self assessment".

At £20K you are a basic rate taxpayer.

At 45K you are a higher rate taxpayer.

If the latter then it is well worth it investing in share ISAs as otherwise the dividends would attract an extra 22% tax.

Link to HMRC site info on Income tax rate bands & %s for you to print off and keep so that the Revenue doesn't have your guts for garters

computerbar

thanks. I already have that table.

LastMinute_2

Hi Computerbar,

I'm in a kind of similar position ... it depends what you mean by 'self employed' here - for instance, are you a one person limited company, or sole trader?

If you have a limited company, then all the money you take out of your company will be (most likely) one of three ways:

1. Salary the company pays you - subject to PAYE and NIC's
2. Company expenses - effectively tax free
3. Dividends - subject to tax

So all the money that comes into your pocket will be after tax.

Once you put some of this money into an ISA, then any interest incurred will be free from Gordon's grasp ... unlike if you put it into a normal savings account which will deduct an amount (either 22% or 40%).

Cheers !

computerbar

LastMinute wrote:

Hi Computerbar,

I'm in a kind of similar position ... it depends what you mean by 'self employed' here - for instance, are you a one person limited company, or sole trader?

If you have a limited company, then all the money you take out of your company will be (most likely) one of three ways:

1. Salary the company pays you - subject to PAYE and NIC's
2. Company expenses - effectively tax free
3. Dividends - subject to tax

So all the money that comes into your pocket will be after tax.

Once you put some of this money into an ISA, then any interest incurred will be free from Gordon's grasp ... unlike if you put it into a normal savings account which will deduct an amount (either 22% or 40%).

Cheers !

I am sole trader
thanks for the info.

Debt_Free_Chick

computerbar wrote:

I am sole trader
thanks for the info.

In which case, any money you put into an ISA should still be included as Drawings in your accounts. In other words, you have to count it as business income first, put it in your accounts and on your tax return, and pay income tax.

The simple answer to your original question

I am self Employed. The money i invested in ISA is profit from my selfemplyment. Do I have to pay tax on it first (too) to invest £7000 in ISAs?

is "yes".

HTH