20k income, how much income/ni do I pay for 10-11?

jklhgf

Hi.

From April 2010 to April 2011 my income was £20,000 based entirely off of contractor work (I work as a for-hire remote systems administrator, computer stuff). I am registered as self employed. From what I understand from this £20,000 I take off the £6475 allowance which leaves me with £13525 taxable. I only started earning in November 2010, before that I had no job (unemployed for 1 year, lived off of savings) and had no income between April 2010 and November 2010.

My monthly rent is £500 for a 2 bedroom flat, one of the bedrooms is my office full time from which I work 12 hours a day. From what I understand I can claim 50% of the cost of my rent as part of my working expenses, which would mean 6 months (nov-april) of £250 (50% rent) means my taxable income becomes around £11000 -- £13525 - £1500.

As £11000 is covered under the basic rate (20%, £37,400) I believe this means my income tax is £2200. My problem now comes from the National Insurance side, I'm not 100% sure if my understanding of NI is correct.

The amount of Class 4 National Insurance contributions you have to pay for any tax year is based on your profits for that year. You pay 9 per cent on annual profits between £7,225 and £42,475 (2011-12) and 2 per cent on any profit over that amount.

Does "profit" mean the money I'm paying tax on (The £11,000 after deductions), the amount before deductions but after my personal allowance (£13525) or before any tax or deductions: £20,000? I understand the difference between revenue and profit, but it's not clear here and I don't want to assume which is the correct figure.

If I make the assumption that's after deductions -- which is what I think is accurate -- then I owe 9% in £3775 which is £340. If I make the assumption it's before deductions but after personal allowance, it's £1217. If it's before any deductions or allowances it's £1800.

So my question(s):

1. Does my figure of £2200 income tax due on £20,000 income after £1500 of expenses and £6475 personal allowance seem accurate?

2. Which figure (£340, £1217, £1800) is accurate for my national insurance contributions required?

Sorry for the convoluted post but I want to make absolutely sure I do this right and that I have the correct information for future tax returns. Also I am aware I am filing very late -- final due date for 10-11 return is January 31st 2012 -- but I have been extremely busy with work all year and this is on the bottom of my pile (hence 12 hour work days).

I'll be getting an accountant for 11 - 12.

Thank you in advance for any help.

HappyMJ

You are getting yourself very confused. I would just hire an accountant now and be done with it. They will save you hundreds. There is a lot more that you could claim that you have not mentioned.

jklhgf

HappyMJ wrote: »

You are getting yourself very confused. I would just hire an accountant now and be done with it. They will save you hundreds. There is a lot more that you could claim that you have not mentioned.

My concern here is not saving money, it is to learn and understand what exactly I owe and why. If I need to I will hire an accountant, but as my income for 10-11 is simple (compared to 11-12 which I will for certain hire an accountant for) I would much prefer to do it myself.

Pennywise

Your pay Class 4 NICs on net taxable profit on which you pay the 20% income tax - just watch for the slightly different threshold - for 10/11 the tax threshold was £6,475 and the class 4 NIC threshold was £5,715. So tax is 20% on profits over £6,475 and class 4 NIC is 8% on profits over £5,715.

Presumably you paid the class 2 NIC's monthly during the year?

No you can't claim half your rent - who told you that. It's proportional to the number of rooms, so it's going to be a quarter, if you have 2 bedrooms, a kitchen/diner and lounge. You also have to pro-rata it if the office/bedroom is used for anything else such as storage or guest bed etc.

BUT, you can also claim a proportion of heat & light, insurance, water rates, etc., not to mention a proportion of your home telephone (if used for business).

Don't forget, you can claim other costs, such as the desk, office supplies, computer, broadband connection, etc etc. All in proportion to the amount of business usage as opposed to personal usage.

All the above you are a sole trader and not a limited company. As suggested above, you'd be better with an accountant to steer you through what can and can't be claimed, and either reduce your tax or reduce your exposure to penalties etc if you get it wrong.