Can someone help me understand my tax calculation?

oldbikebloke

icicat said:

Is it still worth getting an accountant to deal with my return? If earning say slightly over 10k self employed? Could they sometimes find ways to save me money? Or in this case no different to myself filling it in? 

really depends on what costs the business incurs and therefore a) can, and b) how, would you claim them as self employed or as limited. Big picture question, will an accountant find expenses upon which the tax saving will justify their fee and save you money as well? With "only" 10k of income, of which only a part of it is exposed to 40% anyway how much expenses are you realistically going to incur? It is pointless for us to play guessing games on that, only you know what you are likely to spend and therefore what the answer may be.
Yes you could spend more and make a loss - if you do then you WILL need an accountant as valid treatment of losses is not for the first timer 

Point 1 -  Can an accountant find more valid expenses than you can? Will the amount they find justify their fee, bearing in mind the real difference is the % margin of tax you'd pay anyway?
Point 2 - the eternal DIY question re Ltd , do you know how to prepare statutory format company accounts? Yes or No. It will take many hours to teach yourself and you can't be sure you are right until someone who knows reviews them
If you are making "big" purchases do you know if they are i) qualifying costs and ii) how to account for them in terms of accounting profit (capital depreciation or straight to revenue) and corp tax.

as it appears you need to have this extra income then your decision SE or Ltd should be a simple matter of comparing post tax profit for:
a) SE profits with some @ 40% and the rest 20% 
b) Ltd profits (net of additional accountancy costs) with all as dividends, some of which will be @7.5% and the rest 32.5%

uknick

oldbikebloke said:

icicat said:

Is it still worth getting an accountant to deal with my return? If earning say slightly over 10k self employed? Could they sometimes find ways to save me money? Or in this case no different to myself filling it in? 

really depends on what costs the business incurs and therefore a) can, and b) how, would you claim them as self employed or as limited. Big picture question, will an accountant find expenses upon which the tax saving will justify their fee and save you money as well? With "only" 10k of income, of which only a part of it is exposed to 40% anyway how much expenses are you realistically going to incur? It is pointless for us to play guessing games on that, only you know what you are likely to spend and therefore what the answer may be.
Yes you could spend more and make a loss - if you do then you WILL need an accountant as valid treatment of losses is not for the first timer 

Point 1 -  Can an accountant find more valid expenses than you can? Will the amount they find justify their fee, bearing in mind the real difference is the % margin of tax you'd pay anyway?
Point 2 - the eternal DIY question re Ltd , do you know how to prepare statutory format company accounts? Yes or No. It will take many hours to teach yourself and you can't be sure you are right until someone who knows reviews them
If you are making "big" purchases do you know if they are i) qualifying costs and ii) how to account for them in terms of accounting profit (capital depreciation or straight to revenue) and corp tax.

as it appears you need to have this extra income then your decision SE or Ltd should be a simple matter of comparing post tax profit for:
a) SE profits with some @ 40% and the rest 20% 
b) Ltd profits (net of additional accountancy costs) with all as dividends, some of which will be @7.5% and the rest 32.5%

Corporation tax @ 19%?

icicat

Hey MX, yeah I've been thinking of doing that with the pension. I have a pension with my full time job, I could either add more contributions from my PAYE or maybe open a second pension fund for my self employment, if possible? I do have a toddler and claim child benefit (something like £80 a month) so last tax year I was just under 50 in total earnings though if I get to 50k or over does that mean they ask for the child benefit they paid my partner back at the end of the tax year?

icicat

Thanks again oldbikebloke for answering that this return was pretty straight forward as I took the thousand allowance and therefor didn't declare the losses. Though this tax year I know I have to buy some equipment and make a loss on production costs that will go over the £1000 allowance, so need to add that to the expenses and losses. An accountant could advise me before I make the purchase if it is a valid expense, otherwise I would be stuck with an expensive piece of equipment that isn't classed as a business expense. Though I feel like I can easily justify what I buy as use for the business and I guess as long as I don't go and buy a yacht HMRC would find it difficult to question their use
I guess what I'm really not good at is accounting my electricity costs and things like that which an accountant will be useful for pointing out. I'm guessing they would also be an expense which would bring the taxable profit amount down making the tax a little less.

[Deleted User]

icicat said:

Hey MX, yeah I've been thinking of doing that with the pension. I have a pension with my full time job, I could either add more contributions from my PAYE or maybe open a second pension fund for my self employment, if possible? I do have a toddler and claim child benefit (something like £80 a month) so last tax year I was just under 50 in total earnings though if I get to 50k or over does that mean they ask for the child benefit they paid my partner back at the end of the tax year?

They most certainly will!

macman

Your posts are confusing because you variously refer to 'earnings', or 'taxable turnover': the only figure that matters for income tax is your trading profit, and it is not clear whether your mention of a future target of £10K 'earnings' means tradiing profit, or turnover?
On less than £10K trading profit (income less expenditure), I can see no circumstances in which the extra costs and time involved in operating as a limited company are justified, especially as this would be undertaken in your spare time. As I understand it, your current trading profit is less than £4K.
Regardless of structure, you can still employ an accountant or bookkeeper to ensure that you are claiming all your legitimate business expenses.

icicat

Thanks guys. macman yeah I think you're right, for now best just to carry on as self employed as the earnings are still quite low. Maybe if I lost my job I would consider ltd company. I read online some people have appointed their partners as directors of the ltd therefor they are on a much lower taxband being their sole employment and they employ themselves on a low wage.

macman

Yes, you can make your partner and yourself shareholders (not necessarily directors) of the limited company., pay yourself a minimal salary within your personal allowance and award yourself the bulk in the form of dividends, since tax is on the latter is much lower than income tax. Just bear in mind that a) corporation tax may well increase in March, whereas income tax probably won't, and b) company directors whose income was largely derived from dividends have received no assistance under SEISS, as they are not considered to be self employed., Dividend income is not taken into account, and furloughing themselves as employees will produce little income if they are only paying themselves a nominal salary to start with. 

Jeremy535897

icicat said:

Thanks guys. macman yeah I think you're right, for now best just to carry on as self employed as the earnings are still quite low. Maybe if I lost my job I would consider ltd company. I read online some people have appointed their partners as directors of the ltd therefor they are on a much lower taxband being their sole employment and they employ themselves on a low wage.

You can achieve this with a simple partnership, although that does mean  a partner becomes jointly and severally liable for partnership debts.

icicat

Thanks for your responses guys, this really gives a good insight on setting up a company as I have been a bit on the fence about it for a while. I need to google up all the pointers you made as I have an idea though still lots to understand.

I just submitted my tax return. It says HMRC will now process your return. It takes up to 72 hours for it to update on to our system. Though should I pay the tax bill now or does this mean I need to wait 72 hours before making payment?