Quizzes & Puzzles3 mins ago
Calcuating tax when self-employed
4 Answers
hello
my new job has just dropped on me they're paying me as a contractor. initially i jumped for joy thinking of all the bling i can buy with the tax money but then i came to my senses and realised i have to save it for the big bad tax man.
How much do i need to put away? is there a percentage i can go by? its going to be a different amount each month so im going to have to be really careful.
Any help appreciated and if you're really good i might buy you a diamond ring
x
my new job has just dropped on me they're paying me as a contractor. initially i jumped for joy thinking of all the bling i can buy with the tax money but then i came to my senses and realised i have to save it for the big bad tax man.
How much do i need to put away? is there a percentage i can go by? its going to be a different amount each month so im going to have to be really careful.
Any help appreciated and if you're really good i might buy you a diamond ring
x
Answers
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What kind of job is it? Are you in construction? If so they will likely to be deducting 20% or 30% tax from you at source anyway. This will reduce your final tax liabilty and may even create a refund situation.
I'd need more infromation from you. What do you expect to earn per anum? What is the nature of your contracting work?
If no tax is being deducted, try to keep about a third to one side and get your first tax return in as soon after April 5th 2008 as you can. Then you will know exactly how much you have to pay by January 2009 so can budget yourself.
I'd need more infromation from you. What do you expect to earn per anum? What is the nature of your contracting work?
If no tax is being deducted, try to keep about a third to one side and get your first tax return in as soon after April 5th 2008 as you can. Then you will know exactly how much you have to pay by January 2009 so can budget yourself.
In terms of what to put aside, the above advice looks good to me. The link below will take you to HMRC's own website on what to do when you are self-employed - I suggest you work your way through the (relevant) Q&As.
http://www.hmrc.gov.uk/sa/selfemp.htm#new1
One of the first things you will find you have to do is to tell HMRC that you are now self-employed.
The only practical change is that HMRC will send you a self-assessment form each year to fill in. Complete this in good time and they will do the actual tax calculation for you.
In practical terms, there isn't a lot of difference in what you actually pay. You will end up paying the equivalent of employee's NI contribution as well as income tax at the same rate as before. However you will be able to offset expenses against the income you receive. One of these expenses is the cost of you getting to your work and back - because your normal place of work is now your home. Depending whether you have a long commute journey, this might avoid you paying quite a bit of tax. HTH
http://www.hmrc.gov.uk/sa/selfemp.htm#new1
One of the first things you will find you have to do is to tell HMRC that you are now self-employed.
The only practical change is that HMRC will send you a self-assessment form each year to fill in. Complete this in good time and they will do the actual tax calculation for you.
In practical terms, there isn't a lot of difference in what you actually pay. You will end up paying the equivalent of employee's NI contribution as well as income tax at the same rate as before. However you will be able to offset expenses against the income you receive. One of these expenses is the cost of you getting to your work and back - because your normal place of work is now your home. Depending whether you have a long commute journey, this might avoid you paying quite a bit of tax. HTH
Why not ask HMRC whether you really are self-employed? Many firms pay their wokers as if they're s/e without checking whether the terms of the job are really such as will justify that treatment. Have a look at www.hmrc.gov.uk/employment-status. If the firm you're working for have got it wrong there's a chance that you might get to keep all the money after all - the tax and NI will be their responsibiltiy.
Incidentally, Buildersmate may be wrong about claiming the cost of travel to your workplace. HMRC probably won't accept that your place of work is your home.
Incidentally, Buildersmate may be wrong about claiming the cost of travel to your workplace. HMRC probably won't accept that your place of work is your home.
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