Consequences of becoming self employed end of tax year

Mary222

I am on a posting frenzy this morning!

I started self employement at the end of the tax year. That is, i started it in January.

Before that I was under the PAYE system.

This means that I have used my personal allowance for this year!

The consequence of this, is that the monies that I earned in jan, feb and march - I have to pay taxes on ALL the income (less a little bit of expenses)

To my horror I have worked out that 30 percent of the minimal income is a large amount of tax to pay. A huge tax bill for just two months of work.

Q, Am I missing something here, or am I doing my calculations incorrectly.

Thanks all!!

noh

If you were under PAYE until January then only 10/12ths of your personal allowance should have been used.

Mary222

Thanks,

But from april to october I earned over 9000 pounds under the PAYE system, which is over my personal allowance (which I believe is about £8000). So I guess, I have used my personal allowance, and have to now pay taxes on all profits?

CLAPTON

Mary222 wrote: »

Thanks,

But from april to october I earned over 9000 pounds under the PAYE system, which is over my personal allowance (which I believe is about £8000). So I guess, I have used my personal allowance, and have to now pay taxes on all profits?

firstly the tax year runs from 6th April one year to the 5th April the next

so for this year tax year ends 5th April 2013

your tax free allowance is 8100 for this tax year (rising to 9440 for 2013-14)


so taking your gross PAYE earning plus your self employed earning
then the first 8100 is tax free then everything above is 20% tax

also you will pay NI contributions on your SE earnings; the amount depends upon your profit for this tax year

Mary222

"so taking your gross PAYE earning plus your self employed earning
then the first 8100 is tax free then everything above is 20% tax"

Sorry, I may be understanding this incorrectly. I have already paid the tax under the PAYE system. So I shouldnt include the earnings from my PAYE job and pay 20% on everthing above.

No?

CLAPTON

Mary222 wrote: »

"so taking your gross PAYE earning plus your self employed earning
then the first 8100 is tax free then everything above is 20% tax"

Sorry, I may be understanding this incorrectly. I have already paid the tax under the PAYE system. So I shouldnt include the earnings from my PAYE job and pay 20% on everthing above.

No?

the way tax works is about your total yearly earnings

so what will happen when you submit your tax return is that you enter your PAYE earning and your self employed earnings

HMRC when work out your tax liability taking into account your tax alloewance of 8100;
they will then take off what you have already paid in PAYE and you will be charged the reminder.

As far as tax is concerned this works out exactly as if the extra SE earnings where from PAYE ; the NI is different however


If you wish to tell us your PAYE earning and tax paid and give us an estimate of your SE profit, then we could work out your tax liability for this tax year.

Mary222

Ah ha! Ureka - my brain is now clicking!

Thanks so much for your offer in estimating my taxes!!.

Here is a rough estimate

April 2012 - April 2013

PAYE
£1263 Monthly Salary for eight months. Total PAYE salary £10104.
Taxes paid out of that £665. Total PAYE taxes paid: £5320

Self employment
Profits £2598 (after deducting expenses)

Thanks soo much!!

CLAPTON

what was your tax code?

HappyMJ

Mary222 wrote: »

Ah ha! Ureka - my brain is now clicking!

Thanks so much for your offer in estimating my taxes!!.

Here is a rough estimate

April 2012 - April 2013

PAYE
£1263 Monthly Salary for eight months. Total PAYE salary £10104.
Taxes paid out of that £665. Total PAYE taxes paid: £5320

Self employment
Profits £2598 (after deducting expenses)

Thanks soo much!!

Sorry about this but you need to break down the tax and the NI deductions. You can't get the NI part back...only the tax.

And...the number look wrong. If you were on £19,000 then the take home pay would be £1,311 per month and the total deductions add up to £272 per month.

Mary222

Oh ...hmm, the code for the standard deduction - I believe 810L

nomunnofun

Mary222 wrote: »

Oh ...hmm, the code for the standard deduction - I believe 810L

Would it be easier for you to understand if you knew that you were allowed to earn £675 per month , on tax code 810l, before you were liable to pay tax on the remainder at 20%? If you did indeed earn £1263, your monthly tax should have been £117.60 per month.

Now if you only worked nine months of the tax year you would not have used 2025 of your tax free allowances (3 by 675 per month). You can either claim these unused allowances against your first self employed profit in that year or calculate that you have overpaid PAYE tax of £607.50 (20% of 2025)