bizSimple

The simple way to start a business.

Sunday 7 September

“Going it alone doesn't have to mean doing it all by yourself”

Tax

In a nut shell, if you earn money selling goods or services and make a profit, you must pay a percentage of that profit in tax.

You are allowed to 'offset' business running expenses against this profit to make sure you only pay what is due.

You can also offset a percentage of the equipment held in the business (i.e. its assets), including part of the value of your car if you use it for business (up to a maximum of 25% of £12,000 a present).

People often worry more about tax than they should. The secret to income tax is to keep on top of your records so that you know how much you are making, put a percentage of your profits away regularly to save for your tax bill and take advice from the Revenue themselves, or a good accountant.

And don't forget – if you aren't making a profit, you won't pay any tax!

FAQs

How much money should I save for tax?

As a rule of thumb, if you put aside 20% of your profits regularly you should have enough to pay your tax bill when it is due.

I've heard that self-employed people don't pay tax for their first year, is this true?

No. Self-employed people (sole traders and partnerships) pay tax at the end of January and July every year. This is calculated on the profit they made during the April to March of the previous year, plus 50% on top, on account, for the year they are in as well. This means that sometimes you can wait a long time to pay your first tax bill, but it will be calculated from the first day you started trading.

Where can I get help on tax matters?

The HM Revenue & Customs website is a good start, or contact them direct. They often run free short courses on taxation and you can even take your books for them to go through if your turnover is very small!

A good accountant can be worth their weight on tax matters, but remember that they will charge by the hour, so only use them when you need to.