Income Tax Bracket Question

9876abcd

I have a question that I have tried googling numerous ways and cannot find the answer and I can't get my head around my thoughts on the subject! So help needed please

It is my first year running my own business, I also work part time. For self assessment tax I have an accountant and yes he can probably answer this but he is USELESS at coming back to me.

Working out tax brackets, I am presuming I will be in the 20% bracket, but I wanted to double check a few things. For the higher bracket you have to earn over £50,270. Is this figure all of your income, regardless of profit, so before all outgoings are taken off. Thank you in advance  

lisyloo

It’s earned income yes after allowable expenses.

it won’t include pension (paid before income) or dividend income.
how are you running your business and how are you paying yourself?

dividend tax is currently 7.5% and income tax 20% so people with limited companies take very little income usually.

Are you a limited company? 

Dazed_and_C0nfused

Working out tax brackets, I am presuming I will be in the 20% bracket, but I wanted to double check a few things. For the higher bracket you have to earn over £50,270. Is this figure all of your income, regardless of profit, so before all outgoings are taken off. Thank you in advance  

No, you need to look at your taxable income.

If you are self employed them it is your profit, not your turnover, which counts.

If you are director of a limited company then there is nothing to include as it is the company's income.

NB.  You may have employment income and/or dividends from the company which would be taken into account but that is a separate matter to the companies income.

9876abcd

lisyloo said:

It’s earned income yes after allowable expenses.

it won’t include pension (paid before income) or dividend income.
how are you running your business and how are you paying yourself?

dividend tax is currently 7.5% and income tax 20% so people with limited companies take very little income usually.

Are you a limited company? 

Thank you for coming back to me. 

No it isn't set up as a limited company. I work part time as well, so I have just been using that as my income and haven't touched the business account yet. Unsure really how to sort paying myself and what to record it as.

The one thing my accountant would do was set me up on Xero, so the bank account is linked, so any outgoings I link up with whatever invoice/receipt etc. So I havent taken any wages yet, it's all a bit new to me so have been worried to take anything out as I have no idea what kind of tax bill it might be so just left it all. But with current times and costs... I might need to start taking some out soon. So any advice is much appreciated.

If it helps my income is part time, I have 2 houses I rent out, I pay tax on those already. Then the business that started in May 2021, so I am hoping it stays under the threshold which by the sounds it will do if I am taking into account profit and not turnover.

Thanks again, very much appreciated

gravlax

If you keep income within the Basic Rate band, just over £50,000 then the first £12570 is tax free personal allowance. Income over that is 20% tax, and if salaried income there is NI to consider. But if income is taken as dividends, there is a £2,000 tax free allowance (in addition to the personal allowance) and then dividends are taxed at 7.5%. But for State Pension benefits in later life it's worth either paying a salary / NI up to the minimum to get qualifying years. Seek advice. 

Grumpy_chap

lisyloo said:

It’s earned income yes after allowable expenses.

it won’t include pension (paid before income) or dividend income.
how are you running your business and how are you paying yourself?

dividend tax is currently 7.5% and income tax 20% so people with limited companies take very little income usually.

Are you a limited company? 

That does not seem complete - dividend tax is higher for non-basic rate tax payers.  32.5%.  Although likely not relevant to the OP as a sole-trader.

Jeremy535897

You can ignore anything said about salary and dividends if you are a sole trader. These concepts are only relevant to you if you own a limited company, and you have said that you do not.

In your accounting software you should be able to record "drawings", which is where you allocate anything you take for yourself as a "wage". Sole traders pay tax on the difference between sales and costs, which is their profit. What they draw for themselves has no effect on the tax payable, unless those drawings are financed by borrowing in the business (when some reduction in tax deductible interest might happen).

It is your responsibility as a business owner to familiarise yourself with these basic concepts. Read some online guidance like 
https://www.litrg.org.uk/tax-guides/self-employment

You do not want your accountant sending you bills for spending his time in this way, and your accountant will know this.