Sole Trader tax after employment

lightbulb15

hi,

I plan on setting up as a sole trader this week.

2 months ago I left my job under a compromise agreement coming off maternity leave. I paid tax on this as a one time tax payment (due to not returning to PAYE after maternity leave) TAx code was 'OT Non !!!.'

Here's my question - does the income from the compromise payment count towards this year's sole trader taxable income?

or put another way -

when I set up as a sole trader do I effetively start from Zero income.

thank you very much !

LittleVoice

Though you can run your business as a sole trader, all your taxable income from your previous employer and your business will be aggregated in respect of income tax. You and your business are one as far as tax liability is concerned.

It's not that the taxable income from your previous employer counts towards this year's sole trader taxable income. It is that the income from acting as a sole trader and income from being an employee count towards your taxable income.

Hammyman

To add to the above. When you come to fill in self assessment for the current tax year you will find a page for PAYE employment. On there you put the income and any tax paid. They then add the gross amount of PAYE to any profit/loss from self employment and work out the tax due. They then subtract what you have already paid in PAYE from that amount and either send you a bill if you made a profit or a refund if you made a loss on self employment.

In future years, because you'll only be SE and not PAYE as well, you won't get a refund if you make a loss but you can carry the loss forward to offset against profits in future years so it all balances itself out in the long run as long as you remember to apply previous years losses at some point.