A tax calculator is a tax estimator tool and should be used to calculate and individual’s estimated total tax liability. A tax calculator is not intended to serve as an online preparation tool for income tax returns. A self-employed person might find it difficult sometimes to work out what the take home pay is after covering all the business costs. A good and sound knowledge of one’s own income is important in determining personal debts. An efficient tax calculator will take into account the salary paid to the employee and the amount spent on business costs to calculate the tax payable.
Income Tax is one of the most important financial obligations for every self-employed person in the UK and is imposed on the income or profits of individuals in a given tax year. For employees, income tax is usually deducted at source as in the amount is taken out of the pay before the salary is paid to the workers. However the process is different for the self-employed workers and they have to pay a different amount. Any person who runs their own business venture or has a home-run business comes under the category of self-employed and they have to pay a special self-employment tax which is unlike the normal income tax payable.
Self-employed person pays income tax on the profits earned in the business rather than the gross income which is the total amount earned. To work out his figure business expenses have to be deducted from business income. Claims for capital allowances can be made and losses which have been carried over from previous years can be deducted. The resulting amount of profit is the amount which will be taxed. Depending on the amount left to be taxed, the income tax rate will vary.
For the 2018-19 tax year, the basic income tax rate is 20 percent, applying to earnings between 11,851 pounds and 46,350 pounds. For amounts earned between 46,351 pounds and 150,000 pounds, the rate of income tax is 40 percent. For earnings above 150,000 pounds, the rate of income tax is 45 percent. Every worker gets that part of income which is tax-free for personal use which is called the personal allowance. For the current tax year, the personal allowance allowed is 11,850 pounds. Employees can protect themselves from paying a lot of tax by reducing their taxable income. They can do this by deducting certain expenses. For example certain expenses can be categorized by keeping aside certain amounts for specific expenditures.
Normally when people pay income tax, they pay through PAYE. Self-employed persons have to traverse another route. Instead of paying through PAYE, self-employed people must file an annual Self-Assessment Tax return. This applies to company directors as well. Self-employed persons must register for Self-Assessment when they first go self-employed. There are penalties for registering late so this must be done as quickly as possible. After this an annual Self-Assessment Tax return must be competed every year, preferably by January 31st each year. Any tax which is due should also be paid by that date. Payment on account is also an important aspect of this process which has to be remembered. Under this system, the self-employed have to pay 50 percent of the last tax bill towards the forthcoming year’s liability. It is important to budget for it so as to not miss out on anything.
Filing the first income tax return can be quite daunting at first as it is an entirely new process. However with a bit of research and preparation there is nothing like it. Self-employed persons will receive a notice to file each year and from then the return can be filed at any point. There is no necessity to keep it going until the last moment. Most people file their Self-Assessment tax return online. For this a Government Gateway login is required. This takes several days to arrive by post so the filing has to be done well in advance. After logging in, persons will have to answer a bunch of questions about the nature of their business, any other income they have received which includes foreign income and their expenses and income. Expenses can be written as a single figure but if the accounts are very complicated, they can be broken down.
A successful tax return requires systematic and meticulous record keeping throughout the year. People have to keep track of invoices and receipts and make sure they are properly filed. Bookkeeping and accounting software come in handy for most self-employed people. The right option can be found by comparing different accounting software for small businesses. They will help speed up the process and reduce the complexity of the procedure. These steps will hopefully help self-employed people pay their income tax without any difficulties and keep them on top of Self-Assessment filing deadlines.