Paying tax

Flora07

Well I think I just got my brain into gear and came to realize something...I will need to pay tax! LOL I just need some clarifications though...hope someone can enlighten me!

I had been working as an employee for 7 years and in June 2006 I stopped...so this tax year I worked as an employee from April till end of June. My income for that was just under 5K (based on yearly income of 20k) That is of course pre-tax...I never got that amount... as net it was closer to £3,600.

I have now started working as self employed. The business is not going to make that much by the end of the tax year but I will go over the £5,035 threshold.

So here is my question...will I have to pay tax on anything over the threshold? I think that by the end of the tax year my gross earnings (combining the 3 months of employement and the 3 or 4 of self-employment) will come up to approximately £5,500 tops.

While I was employed I paid tax every month...am I due for some money back? Or will I owe them? LOL I'm confused :rolleyes:

Really any help in casting some light on this would be very appreciated.

Flora07

WhiteLily_2

Hi there

Don't worry too much I have been in a similar situation as you and have just completed my first self assessment. You will need to have completed and submitted your first self assessment by January 31st 2008.
My situation was that I ended paid employment September 2005, was on JSA and Temp jobs from Oct 2005 to Jan 2006 and then self employed Feb 2006 to the end of that tax year i.e to April 5th 2006. If you do your assessment online it is really easy and you will see straight away if you are entitled to a refund or owed any money. I have just received my refund! The main thing is to keep all your P45's; P60's and pay slips from your employment so you can easily fill in the boxs and also, to keep accurate records of your outgoings and income from your self employment. You need to be able to prove your expenses and ensure they are 'allowable expenses'. When you register as self employed with HMRC they will automatically send you your tax return for the relevant year and you should read up on the guide book to gain an understanding. One word of advice - don't leave it up until the last minute to submit your assessment i.e January 31st 2008 - you should receive your tax return from April 2007 so can complete straight away if you are that way inclined and organised!!! Also, I do not think you will be owing any/much tax if your turnover is as you estimate - it will all depend on your expenses etc; Good luck!!

WHA

It is well worth reading HMRC's guidance booklet about taxable profits:-

http://www.hmrc.gov.uk/helpsheets/ir222.pdf

A few noteworthy points:-

Income and expenses are based on when the goods were bought or sold and when the services were provided - NOT the dates on which the monies were paid/received.

You can't claim for the full cost of any equipment in the year of purchase - the costs are spread (and tax relief claimed) over several years by means of Capital allowances.

You can't claim for the cost of unsold stock bought for resale. Only the stock sold is an expense - you have to deduct your closing (unsold) stock from your stock purchases to arrive at the allowable costs.

Accounting periods are very important - your accounts (and tax return) need to declare income and expenses for a particular time period so you have to keep proper records to work out which transactions really occurred within each time period you are reporting on in your tax return.

Money drawn by you is not a business expense.

You pay tax on the profits of the business, not the amount you draw from the business - if you have equipment and stock, there is likely to be a huge difference and you could well have a taxable profit (and tax bill) even if you havn't actually drawn anything out of the business.

The above points are what gets most people in trouble - the HMRC guidance booklet mentioned above is quite easy to read and covers most of these points.

Flora07

Thank you both.

Whitelily that makes me feel better. From rough calculations it looks like I will be entitled to a refund but I will also have to pay a little tax (less than the refund). So I guess they'll either deduct the tax from my refund or they will ask me to pay it later on.

Great link and thanks for the tips WHA...I've saved the link in my favourites