Infographic: How To Cope With Tax If You Are Self-employed
Author: Russell SmithMay 6, 2016
Need some advice on sorting your self-employment tax, but have little to no experience or expertise?
While being your own boss certainly has its perks, one thing most self-employed individuals dread is dealing with tax.
Unlike ‘traditional jobs’ where your employer deals with all of your working tax obligations, as a self-employed individual you are your own employer and all of these responsibilities fall on your shoulders.
But what are these responsibilities exactly, and how can you deal with them?
What Tax Do I Have To Pay If I Am Self-employed?
As a self-employed individual based on the UK, categorised as a sole trader, you’ll have to pay a variety of different taxes depending on your occupation.
The biggest tax s income tax, this is simply a percentage of your annual income. You’ll also have to pay class 2 and 4 national insurance tax and possibly VAT as well if you predicted a high-profit turnover; £82,000 for 2016/2017. You can discover more about your exact tax obligations on the HMRC website.
If you still struggle to understand exactly how much tax you owe after visiting HMRC, try using a specifically designed tax calculator to work out what you owe; this won’t include VAT, however.
What Exactly Are Deductibles?
Deductibles are a lifeline for the self-employed. Whereas somebody employed by a company would have their equipment paid for by their employer, a self-employed individual must handle these expenses themselves.
HMRC does not expect you to suffer for owning your own business, however, and has a system in place to ensure you aren’t penalised for buying vital items for your business so you can continue to operate.
Deductibles are essentially business expenses you can claim on your tax returns that increase the amount of untaxable income you earn; £11,000 for 2016/2017. All expenses claimed are added to this amount and can include every that is necessary for running your business, from pencils and paperclips to travel expenses and office rent.
Getting On Top of Tax Is Not As Complicated As It Seems
With so many different taxes to pay and expenses to consider, it’s no wonder filing tax returns fills leads to a bit of anxiety. Dealing with tax isn’t as tough as it sounds, however, and by making a simple plan and sticking to it, anybody can survive tax season.
What If I Still Can’t Manage?
Accounting is a tricky thing, a thing that gets trickier the more transactions you make. For sole traders and very small businesses, good practice is often enough to see the tax year through without any major issues. However, if you are a large business or a business experiencing rapid growth, it can be very difficult to keep up with the demands of work and still keep your finances in check.
If you find yourself struggling with your accounting and self-employed tax, don’t just wait and hope it will solve itself. Contact our expert team of chartered accountants in Leeds today, and we’ll help you get back on track.
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Russell Smith is an award-winning accountant and founder of RS Accountancy. With over a decade of experience running his company, he has worked with countless small businesses just like yours, helping them grow profits and manage their finances. Russell is also a prolific financial writer, having contributed to such publications as The Guardian, The Telegraph and The Daily Mail.