Figuring out Gross Income from Net Income

[jameslp]

I'm trying to figure out what I need to charge when running my business to give me a final target amount (after all costs & tax) that will essentially be cash in my personal bank account. I thought this would be pretty simple until I got totally stuck on reversing tax (i.e. starting from a known net amount and figuring out the gross that we would need to bring in). I've spent ages on it and my head is spinning.

I think I'm right with the following equation to work out Net income (after tax & NI) starting from a Gross amount:

N = G - ( (G-6475) x 0.2 ) - ( (G-5715) x 0.08 )

N is Net, G is Gross, 6475 is the tax free allowance, 0.2 is the 20% tax, 5715 is the NI class 4 threshold and 0.08 is the 8% NI (Class 4).

But I need to start at the Net amount and solve the Gross amount. Now how do you reverse algebraic equations again!? I'd hate to think how complicated this would be if I was to take into account the 40% tax band too. It's so easy going from G to N...

I'm doing all of this in Excel and I want it to be solved with formulas (not goal seek) so I can 'play' with the inputs. Any ideas?

 

[Billmccallum]

I'm trying to figure out what I need to charge when running my business to give me a final target amount (after all costs & tax) that will essentially be cash in my personal bank account. I thought this would be pretty simple until I got totally stuck on reversing tax (i.e. starting from a known net amount and figuring out the gross that we would need to bring in). I've spent ages on it and my head is spinning.

I think I'm right with the following equation to work out Net income (after tax & NI) starting from a Gross amount:

N = G - ( (G-6475) x 0.2 ) - ( (G-5715) x 0.08 )

N is Net, G is Gross, 6475 is the tax free allowance, 0.2 is the 20% tax, 5715 is the NI class 4 threshold and 0.08 is the 8% NI (Class 4).

But I need to start at the Net amount and solve the Gross amount. Now how do you reverse algebraic equations again!? I'd hate to think how complicated this would be if I was to take into account the 40% tax band too. It's so easy going from G to N...

I'm doing all of this in Excel and I want it to be solved with formulas (not goal seek) so I can 'play' with the inputs. Any ideas?

Don't know how to post spreadsheet pages or pics, so if you send me an email I can send back the simple way to do this.

mccallum_bill at hotmail.com

 

[Williams lester]

I'd hate to think how complicated this would be if I was to take into account the 40% tax band too. It's so easy going from G to N...

And the 50% tax band, and VAT possibly if you use a flat rate scheme! Get an accountant, that will let you get on with your business and have somebody else play with the numbers for you.

 

[Deleted member 9840]

Does this help ?

Steve

 

[jameslp]

G = (N – 586.7) / 0.9

Test that out with some figures.

Thanks sanjiv, close but it doesn't seem to work I'm afraid - thanks for trying.

Billmccallum - many thanks for the offer; I've sent you an email!

Williams lester - I totally understand and I won't hesitate to hire an accountant in future, but at the moment I'm still at the planning stages and I should be able to do most of this myself (believe it or not!! LOL). I agree that an accountant is essential when things start to get more complicated.

Steve Cool - thanks, even though I do need this in Excel, this is a useful site that I hadn't found (most sites only do gross to net).

 

[sanjiv]

Yer I just realised it doesn't work too.
I read 0.08 as 0.8. I will have another look.

 

[Jaydee]

Ignoring the fact that the equation will not work for higher incomes due to the tax rate change and starting from:

N = G - [(G-6475)x0.2] - [(G-5715)x0.08]

First of all, expand the brackets to give:

N = G - 0.2G + 1295 - 0.08G + 457.2

Then put like terms together to give:

N = 0.72G + 1752.2

Finally make G the start of the equation by:

G = (N-1752.2) / 0.72

Gotta love algebra!

 

[jameslp]

Ignoring the fact that the equation will not work for higher incomes due to the tax rate change and starting from:

N = G - [(G-6475)x0.2] - [(G-5715)x0.08]

First of all, expand the brackets to give:

N = G - 0.2G + 1295 - 0.08G + 457.2

Then put like terms together to give:

N = 0.72G + 1752.2

Finally make G the start of the equation by:

G = (N-1752.2) / 0.72

Gotta love algebra!

Genius! Oh I wish I could remember how to do all of that - I have intentionally erased it from my memory; I had no idea it'd come in useful for something like this!

Thanks for sharing your working too - it rings a bell and might remind me how to do it myself.

Many thanks again, James

 

[jameslp]

I've just looked through your working and it's brought it all back. I've realised just how easy it is!! But I couldn't have done it without your help....