Self Employed Question

cpw1972

Forgive me if this is in the wrong section, I'm new

Can somebody answer this question....

I sell a product say for arguments sake for £300. How much of that percentage £300 do I pay to the inland revenue?

I know I'll be doing a yearly self -assessment to the Inland Revenue, but was just curious what the percentage is.

Many thanks

Albert_Tatlock_2

It’s a question that can’t be answered on the £300 alone. But I’ll try to give you an idea using some extremely simplistic examples along the way.

Let’s say you set up a Limited Company in order to trade and you are the sole director.

You make and sell 100 of them in the year (£30,000). The materials cost £100 for each one you make (£10,000). You pay yourself a rather modest £10,000/annum salary to make them.

So your revenue is £30k, minus your expenses £20k, gives a profit of £10k.

HMRC would want 20% of that profit by way of Corporation Tax meaning they’d take £2,000 total which works out at £20 per unit.

Profit minus Corporation Tax leaves you with £8k which you can declare as a director’s dividend and this, along with your £10k salary, would be subject to Personal Taxation (rather than Corporate).


Hope this helps!

zygurat789

cpw1972 wrote: »

Forgive me if this is in the wrong section, I'm new

Can somebody answer this question....

I sell a product say for arguments sake for £300. How much of that percentage £300 do I pay to the inland revenue?

I know I'll be doing a yearly self -assessment to the Inland Revenue, but was just curious what the percentage is.

Many thanks

I take it you mean that you will be self employed
When you complete your tax return, self employed section you will end up, hopefully, with a profit. In your example this would be £300 less your allowable expenses of, say. £16,000 so £14,000 profit.
Your tax return is a bare yoursoul document which includes all your income so if you are also employed earning over £10k then you will have paid PAYE and all your self employed profit is taxable, if you are not also employed then your personal allowance £10k will be deducted from your profit so £4,000. tThis is taxed at 20%, £800; there is also Class 4 National Insurance £14,000 -allowance £7955 = £6,045 X 9% ie £544.
Total payable £1,344.
Your question is basically unanswerable unless you do some sort of budget to predict your profit, then proceed as above.

Pennywise

cpw1972 wrote: »

I sell a product say for arguments sake for £300. How much of that percentage £300 do I pay to the inland revenue?

If you mean income tax and national insurance, you pay it according to your profits, not sales revenues.

The only common tax paid on sales revenue is VAT and you don't pay that either unless you register for VAT, which is usually for larger businesses.

Your tax will be at various rates, some at nil, some at 20% and if your taxable income for all sources breaches the higher rate threshold, some at 40%. For NIC, same applies, but it's normally just on profits, again, nil on the first tranch, then 9% on the next and then 2% on the balance over the h/r threshold. So basically your tax and NIC on your profit will be somewhere between 0%, 9%, 29%, and 42% - depending on your business profit and other taxable income.

So, there's no answer to your question - it depends on how many you sell in the tax year, how much they cost to buy, how much are your overheads, your other income, etc.

toastking

So if you have a profit and pay tax on it, then the only way to withdraw it from the business is to pay tax again as an employee paid by the company?

There wouldn't be a lot left assuming they are already employed and paying taxes on earnings.

Auntie-Dolly

Will you be a sole trader? If so, you pay tax on your profit, irrespective of how much you have take in 'wages'. You also need to think about National Insurance.

zygurat789

toastking wrote: »

So if you have a profit and pay tax on it, then the only way to withdraw it from the business is to pay tax again as an employee paid by the company?

There wouldn't be a lot left assuming they are already employed and paying taxes on earnings.

If you are self employed you can NOT receive wages from that business by definition.
If you are trading as a ltd then the company pays tax on profit which is arrived at after charging any wages.

DawnW

can I suggest that the OP has a look at the tutorials available via the HMRC website?

If you are a sole trader / self employed you need to keep a careful record of all your business outgoings and incomings, for your annual self assessment. Just buy a ledger/ large notebook from the stationers or use a spreadsheet if you prefer. I use the ledger method, but also have a spreadsheet to keep tabs of stock etc.

What I then do is to chicken out and ask an accountant to do the bulk of the form . Her (very reasonable) fee is tax deductable, and she is happy to give advice at other times as well. You can of course do it yourself if you prefer / are confident enough not to screw it up. I used to do so when renting out my house a few years ago, but for the buying and selling business I now have it is way more complicated, as is OH's small craft business which involves having a stock of various materials and buying tools.

zygurat789

DawnW wrote: »

can I suggest that the OP has a look at the tutorials available via the HMRC website?

If you are a sole trader / self employed you need to keep a careful record of all your business outgoings and incomings, for your annual self assessment. Just buy a ledger/ large notebook from the stationers or use a spreadsheet if you prefer. I use the ledger method, but also have a spreadsheet to keep tabs of stock etc.

What I then do is to chicken out and ask an accountant to do the bulk of the form . Her (very reasonable) fee is tax deductable, and she is happy to give advice at other times as well. You can of course do it yourself if you prefer / are confident enough not to screw it up. I used to do so when renting out my house a few years ago, but for the buying and selling business I now have it is way more complicated, as is OH's small craft business which involves having a stock of various materials and buying tools.

I do hope you play fair with your accountant by analysing all your payments.