How much should u put by for NI and Tax

Discussion in 'Accounts & Finance' started by Rekkovitch, Jul 24, 2021.

  1. Rekkovitch

    Rekkovitch UKBF Newcomer

    64 7
    Hi All

    Hoping for a bit of advice. I am trying to work out a safe amount that I should put by to cover the partnership ( not vat registered) yearly tax and national insurance payable for the end of the financial year.

    Although this calculation is extremely basic and doesn't take into account net figures and the personal allowance I am doing the following

    Monthly gross takings ( turnover ) £6000
    Money put by at end of month £1200 (20%)

    ( obviously this is a partnership so 50/50 e.g. 3k £600 for each person )

    If I continue to put by 20% of the turnover this should be enough to cover tax and ni , right ? I am hoping this is way more than I would need to pay.

    I cant get my head around the NI element and want to play on the safe side and not have a shortfall

    Any feedback greatly received , please be kind
     
    Posted: Jul 24, 2021 By: Rekkovitch Member since: Nov 6, 2015
    #1
  2. STDFR33

    STDFR33 Contributor

    4,708 1,269
    Tax is based on profits not turnover. Start there.
     
    Posted: Jul 24, 2021 By: STDFR33 Member since: Aug 7, 2016
    #2
  3. WaveJumper

    WaveJumper Contributor

    2,044 517
    I would also suggest you sit down with an accountant
     
    Posted: Jul 24, 2021 By: WaveJumper Member since: Aug 26, 2013
    #3
    • Thanks Thanks x 1
  4. Socio South West

    Socio South West Contributor

    1,045 282
    At the sort of turnover you are mentioning your profits are likely to be sufficiently small that even a very basic accountant will find enough expenses and allowances to get rid of any tax liability on the profit element, leaving you just the National Insurance to pay.

    There is a tool on Gov.uk that you may find useful: https://www.gov.uk/self-assessment-ready-reckoner
     
    Posted: Jul 25, 2021 By: Socio South West Member since: Mar 24, 2013
    #4
  5. AllUpHere

    AllUpHere Contributor

    3,933 1,644
    How can you possibly know that, based on the information given?
     
    Posted: Jul 25, 2021 By: AllUpHere Member since: Jun 30, 2014
    #5
    • Thanks Thanks x 2
  6. Rekkovitch

    Rekkovitch UKBF Newcomer

    64 7
    Projected turnover 72 - 80k this year ( so 36k - 40k per person on the partnership)

    Personally I dont feel comfortable not putting by a decent amount hence my question of doing 20% of the turnover ( not net ) which I presume will be plenty
     
    Posted: Jul 25, 2021 By: Rekkovitch Member since: Nov 6, 2015
    #6
  7. Rekkovitch

    Rekkovitch UKBF Newcomer

    64 7
     
    Posted: Jul 25, 2021 By: Rekkovitch Member since: Nov 6, 2015
    #7
  8. WaveJumper

    WaveJumper Contributor

    2,044 517
    Simple terms here .... your turnover might 80k but your expenses might be 60K leaving you 20K I stick with my first suggestion you need to sit down with an account so they will understand the full picture as I really don't think your are unfortunately earning what you currently think. Please do it before you create yourself a whole load of problems
     
    Posted: Jul 25, 2021 By: WaveJumper Member since: Aug 26, 2013
    #8
  9. Ozzy

    Ozzy Founder of UKBF UKBF Staff
    Verified Business ✔️
    Contributor

    4,119 709
    The advice of having an accountant run through all the numbers properly is best; but as a rule of thumb I always suggest leaving 25% of profit aside. It should be more than you need to so you have a but left over, unless you hit the higher earner threshold.
     
    Posted: Jul 25, 2021 By: Ozzy Member since: Feb 9, 2003
    #9
    • Thanks Thanks x 1
  10. Rekkovitch

    Rekkovitch UKBF Newcomer

    64 7
    Thats great thanks for the suggestion
     
    Posted: Jul 25, 2021 By: Rekkovitch Member since: Nov 6, 2015
    #10
  11. Martin Patfield

    Martin Patfield Contributor

    116 30
    On my spreadsheet for self employment, I have calculated income minus expenses to leave a profit figure. With this figure I have calculated 30% just to be on the safe side. Anything then not owed as tax is 'extra' which is always a good feeling.
     
    Posted: Jul 25, 2021 By: Martin Patfield Member since: May 3, 2018
    #11
    • Thanks Thanks x 1
  12. Rekkovitch

    Rekkovitch UKBF Newcomer

    64 7
    Good idea, I'm trying to be over cautious and save more than needed thats why I thought 20% of all the turnover irrespective of outgoings, personal allowance etc
     
    Posted: Jul 25, 2021 By: Rekkovitch Member since: Nov 6, 2015
    #12
  13. Spur Support Services

    Spur Support Services Full Member
    Contributor

    326 68
    Putting more money aside, rather than less is a very sensible plan, and reminds me very much of what Construction Sub Contractors are forced to do within the CIS scheme.

    As well as the deductible expenses, your income tax will be effected by how much other income you also make (for instance if you have employment in addition to your business).

    With NIC, there are both a self employed weekly amounts and then a profit based amount, subject to low profit thresholds.

    If you have managed to overestimate, and put aside, your tax and NIC, then this is great.

    I suggest preparing your tax return early, so that you can get the actual liability agreed over the next few months. You can release the balance of your savings and treat yourself and your family to a few treats or plan for Christmas.
    (bearing in mind that you still need to be saving tax and NIC for next year :D ).
     
    Posted: Jul 25, 2021 By: Spur Support Services Member since: Aug 21, 2020
    #13
  14. neilsolaris

    neilsolaris Contributor

    206 10
    If this is a new business, you might need to be mindful that after submitting your first tax return, depending on your tax payable amount, you may need to pay a balancing payment for the period already finished, plus a payment on account for the period you're currently on (income tax & class 4 NIC only), payable January & July. This can be a bit of a shock if you weren't expecting it.
     
    Posted: Jul 25, 2021 By: neilsolaris Member since: Apr 30, 2018
    #14
  15. Socio South West

    Socio South West Contributor

    1,045 282
    @AllUpHere @Rekkovitch - to explain my previous

    OP states: Monthly gross takings ( turnover ) £6000

    Sorry if I am teaching you to suck eggs here... but....

    Turnover/ takings/ sales is NOT Profit

    Profit is derived after costs of sales (Variable costs) and costs of running the business ( Fixed costs) have been deducted from the total sales.
    After that there are tax allowances that can be claimed which will further reduce the tax liability.

    It is Profit on which Tax calculations are made, not Turnover or sales.

    If the business is making a taxable profit of 35% of turnover I would consider it to be doing reasonably well, so in this case that comes out at about £12,500 for each partner, so I repeat - most unlikely that any tax would be due.
    Even at 50% thats still only £18,000 per partner, and any accountant worth their salt will find enough adjustments to at least minimize tax payable on that sum as well.

    Personal tax allowance (ie earnings before you start paying tax) is £12570 for 21/22 hence no tax due at 35% profit
    With profit at 50% tax only due on £5430 each, so at 20% basic rate, the worst case scenario tax bill for the two partners will be just under £2200.

    National Insurance is additional to this.
     
    Posted: Jul 25, 2021 By: Socio South West Member since: Mar 24, 2013
    #15
    • Thanks Thanks x 1
  16. AllUpHere

    AllUpHere Contributor

    3,933 1,644
    It would have been a lot easier to just admit your last post was a bit daft. Have you ever heard the phrase "when you've dug yourself into a hole, stop digging"?

    You can't possibly say there will be no tax to pay based on what we know, to suggest you can is just daft.
     
    Posted: Jul 25, 2021 By: AllUpHere Member since: Jun 30, 2014
    #16
    • Thanks Thanks x 1
  17. neilsolaris

    neilsolaris Contributor

    206 10
    I agree it's not possible to know the answer without access to the accounts, but with a 35% net profit margin I can't see anything wrong with his calculations. I guess the op could try to work out their net taxable profit first, and then seek further advice?
     
    Posted: Jul 25, 2021 By: neilsolaris Member since: Apr 30, 2018
    #17
  18. AllUpHere

    AllUpHere Contributor

    3,933 1,644
    The op could just as easily have 95 % profit, meaning he will have tax to pay. Guessing he won't have tax to pay, and advising him as such, is stupid.
     
    Posted: Jul 25, 2021 By: AllUpHere Member since: Jun 30, 2014
    #18
  19. neilsolaris

    neilsolaris Contributor

    206 10
    I agree with what you're saying. Depending on their industry it might help predict an approx profit margin, but it'd still be a guess.
     
    Posted: Jul 25, 2021 By: neilsolaris Member since: Apr 30, 2018
    #19
  20. Socio South West

    Socio South West Contributor

    1,045 282
    @AllUpHere Let us agree to disagree on my approach here.

    The main thing in the context of the thread is that our friend understands that he needs to base his calculation on the profits, whatever the percentage may be, and not on sales/turnover.
     
    Posted: Jul 26, 2021 By: Socio South West Member since: Mar 24, 2013
    #20