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Self Employment Tax

Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
Hoping for a bit of advice.

My husband became self-employed last October and therefore will need to fill out a tax return for Oct' 07 - April '08.

I understand that you are eligable for a personal tax-free allowance of £5225 however my question is how is this worked out?

For example his wage is not constant, he may earn a lot in one week and not so much in another. Do they divide the allowance by 52 and then you have to pay tax for any earnings over that each week? Or do they wait for the whole year accounts and then charge tax on anything over the allowance?

My confusion in this is from my job as I have been told that the tax allowance is straddled across the year - however I think this is based on PAYE as you pay the tax with each months wages.

Reason for all of this is I am trying to keep on top of how much tax he will eventually owe so that it doesn't come as a surprise. Is it best for me to just tot up his earnings and then begin to allow for tax repayments once he is over his allowance?


As another side question for somebody who might know;

We were partners in a business that we closed in September last year. Unfortunately we were left at a loss - is he able to write off that loss against earnings he is making in his new job? I have a feeling they would be considered seperately but I thought it would be worth me asking!

Thanks for any help you might be able to give :)

Comments

  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    With PAYE if it is your main or first employment in the tax year they generally spread it over 52 weeks or 12 months, depending on how you are paid, for ease of accounting. Your final tax liability is settled in April though and if you have underpaid or overpaid through PAYE your tax account is adjusted.

    Your husband's tax is based on his profit for the tax year and the tax-free allowance is treated annually (i.e. the first £5225 of profit he declares is tax-free, etc). This is exactly the same as through PAYE- tax is an annual bill. You can use the same accounting trick to put some money aside for when the tax bill lands but you should be prepared in case you don't put aside enough. Usually HMRC ask for tax to be paid in two installments, in January and July.

    You might want to give TaxAid a ring for a bit more advice or if you make some good profit you might want to hire the services of a good accountant.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Ah glad my understanding is about right - one question though...

    I have seen in a few places about paying in two installments as you have mentioned, which January/July does it relate to? We will be sending in his tax return for April '07 - April '08 by the 31st January '09 - are they saying you could pay half in the Jan and half in the July?
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    I dont know about first year trading (you might want to ring the revenue and check) But normally the tax is paid on account.

    So when he files in Jan 09, he pays the balance for 07/08 and half of the total tax tax for his first 09 payment on account.

    By the 31st July 09 you have to pay half of last years tax liabilty again for 08/09 on account.

    When you file in Jan '10 you pay the balance (or claim the difference) of his 08/09 liability and pay half of last years liabilty as well as his Jan 09/10 installment.

    The payment on account is worked out as last years total income tax payable, less any income tax paid through PAYE in that period divided by 2.

    That about right, its been a while since I've done any self assement based. If you can, get another bank account just for his tax money, if you put it aside in a specific account your less likely to touch it.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Splodgey wrote: »
    Hoping for a bit of advice.


    As another side question for somebody who might know;

    We were partners in a business that we closed in September last year. Unfortunately we were left at a loss - is he able to write off that loss against earnings he is making in his new job? I have a feeling they would be considered seperately but I thought it would be worth me asking!

    Thanks for any help you might be able to give :)

    Assuming your financial year started April 07: You will need to complete a partnership page for April - September detailing the loss made. Then a self employment page for Sept - March 08 (end of financial year) showing the profit from self employment. When the tax return is processed the partneship loss will be netted off against the self employment profit. Tax will be calculated on the remaining figure. Thats a very basic answer - it might be worth getting an accountant as their fees are an allowable expense :)

    It depends on your profit figure as to whether payments on account are due. I think if your tax liability is less than £500 for the year then you are not asked for payments on account. I would ring the helpline for clarification as I've been on maternity leave since Sept 07 and my brain was left in the delivery suite haha :blush:
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    Thanks for this advice! I think I might end up looking to an accountant for a bit of a hand this time round - has been reasonably simple up until now.

    They have peed me off something chronic this time round as they have managed to lose our Partnership Assessment and are attempting to charge us for the pleasure. Not only do I have to redo the assessment but I have to fight our corner as to why we shouldn't have to pay the penalty. Grrrrrr :mad:
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    make and keep photocopies of everything you send off, or think about completing your returns online.
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    katralla wrote: »
    make and keep photocopies of everything you send off, or think about completing your returns online.

    I tried online the first year but the system kept crashing it was so overloaded - wish i had taken photocopies though, will definately take that advice next year!!
  • Former MemberFormer Member Posts: 1,876,324 The Mix Honorary Guru
    I know what you mean about the online system crashing (I'm an accountant lol)

    Not trying to scam you, but an accountant is probably the best route to go down, they always keep paper and computer copies, have the most knowledge of how to deal with it, and as long as you give them all your details, if it's late going in then they'll probably pay the fine.

    With regards to paying twice in January and July...if you only have a small amount of tax that you need to pay you'd simply have to pay this in January.

    Some people have a LOT of tax to pay (we're talking thousands) and HMRC asks them to pay this years tax, and then half again in July as a sort of prepayment towards next years tax (so they aren't stung again next year)

    Good luck!
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