How much should I be paying the government

[rtw2000]

Hi,

Ive asked a few people and rang a few help lines but I really just wanted to double check a few things as i'm not a 100% sure..

I have recently become self employed and I am a web designer and wanted to get some advice - i'm not VAT registered

- do I pay 20% on 'profit' (not turnover) I make every year? for example is I charge £1000 for a site....I should hold back £200 for the government?

- If I was to claim back expenses...eg/ petrol this would reduce profit...so therefore reduce amount of tax I pay.
so..for the £1000 job, say I spent £100 on software, I would now be making £900 profit...and therefore owe £180


- at the end of the year I will have my books, I assume I take it to an accountant - which will then be processed for the government?


I feel I may be getting the wrong end of the stick and would really appreciate some posts.

Thanks in advance



-

[elainec100@cheapaccounting]

OK - you need to read a bit on how to do some accounts> my blog post here explains it:

http://www.cheapaccounting.co.uk/blog/?p=153

[oldeagleeye]

Blimey Elaine

A WD that gets a cool £1,000 for a web site. They have been advertising them for £50 quid on here. Mind you it seems the student in that case grabed the money and is back off to college.:eek:

OP. You could do a hell of a lot worse than employ Elaines or Jenni's firm. (Expect Jenni be along in a min.) Either will save you more than the fee in claiming expenses you have probably never heard of like claiming a percentage of the cost of capital equipment like vehicles - computers etc and writing it off against tax each year.

Going it alone is I assure you a false economy especially these days when the are so many tax changes every year.

Rob

[akirk]

Some good advice above...
roughly speaking you pay corporation tax on the surplus you make
how you calculate the surplus depends on lots of things - e.g. are you paying yourself a salary (comes out of income before profit but can be more expensive), or as a LTD company, paying dividends (cheaper, but post profit), or a mix fo the two to take advantage of tax allowances...

I would def. support the need to talk to an accountant - a good accountant will adjust their contribution to your needs - i.e. if you need a session now to advise you on what to do and then let them do the books at the end of the year then that is okay - or continual support - also okay - talk to them and see what they can do - as Rob says, they should def. end up saving you money...

But not a bad concept to take 20% of everything that comes in and squirrel it away - you won't need all of it at the end of the year, but what is not needed is a nice nest egg... if you get used to thinking of that money as never being yours (as with VAT if you register), then you will never get a shock come tax time!

Alasdair

[MyAccountantOnline]

- at the end of the year I will have my books, I assume I take it to an accountant - which will then be processed for the government?


No not necessarily - it depends how you want to work with an accountant. If you are going to appoint an accountant I'd do so now - a good accountant will do more than prepare your year end accounts and tax return.

Dont forget you must register with HM Revenue & Customs if you havent done so already. Have a look here - http://www.hmrc.gov.uk/businesses/tmastarting-up-in-business.shtml

[KM-Tiger]

I have recently become self employed ... and wanted to get some advice

Probably the best advice is to engage your accountant now, so you can get things set up right at the outset. Most will not charge a fee for an initial consultation

Decisions need to be made: Sole Trader or Ltd, VAT registration or not, how to deal with bookkeeping. All will be best discussed with an accountant as there are both pros and cons to most choices, and you must decide.

If you don't set things up right you are likely to be financially worse off:

Pay too much tax
Pay a larger accountant's fee to sort things out.

No-brainer, really.

[taxattack]

Hi,


- do I pay 20% on 'profit' (not turnover) I make every year? for example is I charge £1000 for a site....I should hold back £200 for the government?

-

Actually it's more than that - there's also 8% Class 4 National Insurance on profits between £5715 and £43875 (1% thereafter). That is in addition to the flat rate £2.40 pw Class 2 NI.

Advice to speak to an accountant now is good (and I'm happy to be considered!)

Chris

[rtw2000]

Thanks for all your posts its been very helpful

I'm currently paying weekly national insurance. I'm not taking a wage, I don't want to take much out to keep cash flow high - so I'm going to take drawings...unless theres an advantage of taking a salary?

...another question (sorry)... I have been told I could buy a new computer (or anything that will help to grow the business - and claim it back : is this correct?

...but I think your all right an accountant would be very much worth while in the long run

Thanks again

[rtw2000]

...also I have got a few subcontracts in place...would this have any effect? or treated exactly the same way. Many thanks

[elainec100@cheapaccounting]

...also I have got a few subcontracts in place...would this have any effect? or treated exactly the same way. Many thanks


what do you mean by subcontracts?

[akirk]

...but I think your all right an accountant would be very much worth while in the long run

Thanks again

and the short term :)

if you are unsure regarding issues such as computers etc. then you need accountancy advice.

Alasdair

[Chris34]

Anything that you buy for the business is classed as an expense. If you bought a computer and used it purely to run your business and the business needed it then the whole cost of the computer is classed as an expense. If you bought some music to play on the computer while you did your work then this is not classed as an expense as the business doesn't need it. However if your office was very noisy and you bought some earplugs to block out the noise then the earplugs can be classed as an expense.

It's common sense at the end of the day, whatever piece of equipment you need to help run the business will more than likely be classed as an expense.

There are limits on what you can sensibly spend on equipment though but again it's common sense. If you have a salesman travelling up and down the country then the salesman needs a vehicle for the business and this vehicle would be classed as an expense but the salesperson needs a vehicle not a Ferrari : ) Unless the salesman was selling Ferrari's as that would be different but again it's common sense but the tax websites (not sure the address) will provide you with all the exact acceptable allowances on larger equipment.



Chris.

[rtw2000]

for example I would work for a day, at a set hourly rate and then invoice them

[Eagle]

roughly speaking you pay corporation tax on the surplus you make
Is the OP incorporated?

[elainec100@cheapaccounting]

Is the OP incorporated?


no he said he was a sole trader.

So income tax and class 2 & 4 NI to pay

[Eagle]

no he said he was a sole trader.

So income tax and class 2 & 4 NI to pay
Thanks. I just wondered why someone said they would pay corporation tax...

[oldeagleeye]

Personally. I think that anyone in a service industry or profession that expects to turnover around £55K+ with very minimal operating costs is better off going LTD. How else can you earn almost £45,000 a year tax & N.I free.

As the guys will tell you time & time again OP Get an accountant NOW to help set up your trading structure properly.

Rob

[elainec100@cheapaccounting]

How else can you earn almost £45,000 a year tax & N.I free.



Subject to corporation tax being deduced from the profits of course - so no really all tax free. :p:p

[elainec100@cheapaccounting]

Have a read of this blog post about first year losses:

http://www.cheapaccounting.co.uk/blog/?p=470

So some times in the first year (depending on circs) it may be worth being a sole trader.

As always specific advice needed on personal circs of the person starting the business.