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UK - What percentage of income is taxable?

by GoodnightSweetRatRace
7 replies
If I were to start an online business, what percentage of my earnings would I have to save to pay the annual tax?
#income #percentage #taxable
  • Profile picture of the author TristanPerry
    Assuming you go down the self employment route (and not actually starting a registered company), all the information you need is here:

    HM Revenue & Customs: Rates and Allowances - Income Tax

    So a £6,475 personal allowance, then 20% tax on anything over that and below £37,400, then 40% tax on anything over that and below £150,000, then 50% thereafter.
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    • Profile picture of the author GoodnightSweetRatRace
      Originally Posted by TristanPerry View Post

      Assuming you go down the self employment route (and not actually starting a registered company), all the information you need is here:

      HM Revenue & Customs: Rates and Allowances - Income Tax

      So a £6,475 personal allowance, then 20% tax on anything over that and below £37,400, then 40% tax on anything over that and below £150,000, then 50% thereafter.
      Thank you.

      Are there any additional payments apart from income tax? I mean down the self-employed route?

      If I earned £30,000 in a year, is it literally just the 20% you have to set aside? Or are there other payments?

      Sorry for the newbie questions, been employed all my life.
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  • Profile picture of the author Tengalon
    No one can give you an answer to this question without a lot more information about you and your business. Its a bit like asking how do you get from London to Scotland without giving vital information like where abouts in Scotland you want to go, how quickly do you want to get there, how much money do you have for your fare etc etc. Your best bet is to find a local accountant, lay down all your circumstances like how much money are you expecting to make in a calender year, sole trader or Limited company, personal pension contribution etc etc.

    Hope that helps.
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    • Profile picture of the author GoodnightSweetRatRace
      Originally Posted by Tengalon View Post

      No one can give you an answer to this question without a lot more information about you and your business. Its a bit like asking how do you get from London to Scotland without giving vital information like where abouts in Scotland you want to go, how quickly do you want to get there, how much money do you have for your fare etc etc. Your best bet is to find a local accountant, lay down all your circumstances like how much money are you expecting to make in a calender year, sole trader or Limited company, personal pension contribution etc etc.

      Hope that helps.
      Ah I see.

      Yeah I will make sure I contact a local accountant when my earnings are more substantial. Currently only earning around £150-£250 per month through IM. I just want to know the ins and outs of self employment because it's all new to me.

      Thanks for your response.
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  • Profile picture of the author Nicola Lane
    There is also national insurance - you will need to pay a weekly sum and then a percentage each year.

    The best advice is to actually call your local tax office, they will be happy to talk to you - and will direct you to the right info on thier web site.

    A good rule of thumb is to save a third of your income, that should easily cover your tax and NI liability and give you the funds to hire an accountant should that become necessary.

    Also if you are already earning you already have a tax liability - technically as soon as you earn any extra money you need to pay tax on it.

    Call the tax office and read the stuff they will recommend.
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    • Profile picture of the author Pedroskovic
      Within three months of starting, you need to register with HMRC as self employed and pay self employed National Insurance Contributions (NICs) - £2.60 a week (I think). Just contact HMRC for this and they will send you a mountain of pointless paperwork and advice about running a business that you don't need.

      You can pay NICs manually or by direct debit quarterly.

      Your income tax element on earnings from your online activities depend entirely on your income from all sources. If you already have income, you need to consider whether you are already past the taxable allowance. E.g. you earn more than the £6k tax free allowance per year and then start work online. Every penny you earn will be liable at 20% income tax + class 4 NICs (until you reach the higher rate limit). If you have no income, you can earn up to the taxable allowance before paying income tax (£6k) but your class 4 NICs kick in a little sooner - somewhere in the £5k region I think.

      Keep a running total of expenses and income so you know your profit/loss.

      You declare your earnings on your self-assessment no later than Jan 31 the following tax year. You will receive a request to complete your self-assessment as a result of declaring your self-employment.

      As I mentioned, beware that class 4 NICs become payable at a lower taxable threshold than income tax. The threshold will be on the HMRC website. It is 8% from memory.

      Don't forget that you can offset some costs against earnings... domain addresses, hosting etc. A tax accountant can help you with this. Keep all receipts of your costs!

      I would suggest dedicating a bank account to your activities and costs so you can draw up an annual profit and loss. Start and end your business activity in line with the tax year. (6th April to 5th April)

      One good thing about working online is you can call up most of your income and invoices online which makes doing your books easy.

      Be aware of how "payment on account" works - kind of like Pay As You Earn for self employed people, but every six months and thus a larger sum of money. It will kick in dependent on your earnings the following year.

      If you earn £12,000-£15,000 from your online activity it becomes worthwhile investigating becoming a Limited company for tax liability avoidance (not evasion!) purposes. Your company can then pay for an awful lot of things that may warrant a discussion with the tax office otherwise.

      You can complete your self-employment tax return online and it is really easy and does all the math for you. Do it early so you know your liability and don't get caught out when it comes to paying up time - Jan 31 the following tax year. Set aside the tax money in advance!

      Check everything with your local tax office. I am not an accountant or tax professional!

      Good luck!

      Cheers

      Pete
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