Tax & National Insurance

[traxor]

Hello all,

Can I please have a clear response to this?

At what point do I have to start paying income tax for my earnings? What are the boundaries, and is this based on the profit that I make, or the turnover that I make?

The same question again for my National Insurance. I currently have a certificate making me exempt from paying it, but I'm going to call today to begin paying it.

[Maslins]

Assuming this is self employed earnings you're talking about:

You can earn ~£6k profit before you need to pay tax. Note this is cumulative across all earnings. So if you have another job that pays you £10k/year and make only £100 profit from your self employment, you will be liable to tax on that self employed profit.

You can also earn ~£6k profit before you need to pay national insurance. However, this is not cumulative. So you can potentially have 3 jobs each paying £5k and be self employed making a profit of £5k without paying any national insurance whatsoever.

Turnover doesn't affect either income tax or national insurance. It does decide whether you have to register for VAT or not. If your turnover exceeds £68k you'll need to register, regardless of whether you make a profit or not.

[traxor]

Hi Maslins,

Thank you for the detailed response. If I, say, go over the £6k threshold I immediately have to pay taxes for 22% of that? So I'd need to fork out the £1320?

[Maslins]

If I, say, go over the £6k threshold I immediately have to pay taxes for 22% of that? So I'd need to fork out the £1320?

No, if you earnt, for example £8k (and that was your only earnings), you'd be liable for 20% income tax on the £2k excess, and 8% class 4 NIC also on the £2k excess. You'll also need to pay class 2 NICs that are at a fixed rate of ~£12/month (I forget the exact amounts/limits and can't be arsed to look them up!)

[traxor]

No, if you earnt, for example £8k (and that was your only earnings), you'd be liable for 20% income tax on the £2k excess, and 8% class 4 NIC also on the £2k excess. You'll also need to pay class 2 NICs that are at a fixed rate of ~£12/month (I forget the exact amounts/limits and can't be arsed to look them up!)

So, let me get this straight.

If I earnt £10,000 with £7,500 profit, I would only have to pay tax on £1,500 of this? Just making sure you understood my question!!

[Maslins]

If I earnt £10,000 with £7,500 profit, I would only have to pay tax on £1,500 of this? Just making sure you understood my question!!

What do you mean by "earnt"? You mean turnover (ie total sales ignoring costs)?

Your sales do not relate to the income tax you pay. If you sell £1million of stuff, and your total costs are £1million, you won't pay any income tax.

£7,500 profit (again, assuming no other income, ie salary from elsewhere, rental income, interest etc) would lead to (roughly speaking) £300 tax (being 20% of £7,500-£6,000).

[traxor]

What do you mean by "earnt"? You mean turnover (ie total sales ignoring costs)?

Your sales do not relate to the income tax you pay. If you sell £1million of stuff, and your total costs are £1million, you won't pay any income tax.

£7,500 profit (again, assuming no other income, ie salary from elsewhere, rental income, interest etc) would lead to (roughly speaking) £300 tax (being 20% of £7,500-£6,000).

Sorry for all the questions, I just need to make sure I know everything right.

So, for example, I'm reaching the threshold of 6,000 at the moment. If I make 6,001.00, I would only have to pay 22pence tax?

So as soon as I hit the 6k mark, I should start putting up 22% of those profits?

[Maslins]

So, for example, I'm reaching the threshold of 6,000 at the moment. If I make 6,001.00, I would only have to pay 22pence tax?

So as soon as I hit the 6k mark, I should start putting up 22% of those profits?

Yes, except it's currently 20% (not 22%), and you should also factor in class 4 NICs at 8%.

So put away 28% of your profits over £6k and you won't be too far out.

[traxor]

Yes, except it's currently 20% (not 22%), and you should also factor in class 4 NICs at 8%.

So put away 28% of your profits over £6k and you won't be too far out.

That's great thank you. Really put my mind at rest!!