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If you are going to be self-employed, then it's pretty straightforward. Let's assume that you bought things for £4000, plus you spent money running the business of another £1000 in travel and other costs (phone, electric, etc), and you sold those things for £7000 turnover. Thus you spent £5000 total, and received £7000 so you made a profit of £2000. You then pay tax and national insurance (NI) on this profit. You can earn £6475 in the 2009/2010 tax year before paying tax and NI, this is your "Personal Allowance". So if you had no other income, then you'd pay no tax on your £2000 profit, but if you had another job and had already earned over £6475, then you'd have to pay 20% basic rate tax and 8% (I think) NI on your £2000 profit, so 20%+8% of £2000 = £560. If you are going to have a low turnover (less than about £65k), then you don't need to be VAT registered, so it's simple. In terms of keeping books, you need to be able to show what you spent (so keep receipts for all the stuff that added up to £5000) and show what you received (copies of all your invoices that added up to £7000). Then you fill in the relevant numbers on your self-assessment tax return in January, and pay half the tax then, half in July. (You don't actually send the receipts to the tax people, but they can ask for them if they want to check up on you, so you need to keep them.) My local tax office have always been very helpful. They provide booklets, etc, and I went on a couple of half-day seminars to help new starters.

Source(s)

Been self-employed for several years.

by RickRandom

1 month ago

Asker's Rating: 

10% tax rate??? You don't need a bank - you need an Accountant! When starting out in business for the first time, I can guarantee that you will lose out on allowances and deductibles unless you speak to an Accountant. The sort of turnover that you are looking at will probably keep you below the tax threshold, (unless you have other emplyment as well) but just to make sure you should consult an Accountant and get advise on costs such as advertising, labour, materials, insurance, stationery, vehicles & fuel, and other less obvious things such as depreciation of vehicles or machinery, and the working from home allowance. He will also advise you of the best and clearest format to use for your book-keeping and the legalities involved when invoicing etc. The hmrc.gov.uk website is the one to use.

by Cala- 1 month ago

Speak to your local Business Link. They provide free help and information on starting in business, including free seminars. Inland Revenue also offer free seminars on all aspects of tax and national insurance for business owners. They're really helpful and you can ask questions about your own situation afterwards. As Cala says, their website is very helpful. Good luck!

by Rosemary P- 1 month ago