How to Start and Run Your Own Home-Based Business by Matthew Thomas

Author:Matthew Thomas
Language: eng
Format: epub
Tags: How
ISBN: 9781781041888
Publisher: W&H Publishing
Published: 2012-01-10T16:00:00+00:00

Income Tax

The amount of income tax you have to pay depends on a range of factors. As you will probably know, everyone in the UK has a tax-free personal allowance. For the tax year 2008/09, the basic personal allowance was£5,435. Once your earnings in a year exceed this, you start to pay tax at whatever may be the going rate. For the tax year 2008/09, tax was due at20 per cent on taxable earnings of up to £34,800. Any income above this was taxed at a rate of 40 per cent.

Note that the figures above are based on your income from all sources. If you have another full-time or part-time job, this may well use up your tax- free allowance, and in that case you will pay tax at the appropriate rate on all your business earnings.

Self-employed people declare their income to HM Revenue & Customs (HMRC), and pay tax by two instalments in January and July each year (unless the amount owed is very small, in which case it may be collected in one instalment or by an adjustment to your personal allowance for the following year).

If your business is set up as a limited company different rules apply, and you will need to take advice from an accountant. You are most likely to be paid in the form of a salary from the company, on which you will have to pay tax monthly like any employee, and dividends, which for tax purposes are treated differently again. Your accountant will advice you on the most tax-efficient combination of payment methods for your particular circumstances.

As soon as you start earning money from your home-based business, you should notify HMRC; they will then send you the necessary forms to fill in. The office to contact will be the one covering the area where you live (assuming you are working from home). This may well be different from your former PAYE tax office, which will have been based on your employer’s address, not yours.

Up-to-date information about tax rates, allowances and so on is available from the HMRC website at www.hmrc.gov.uk.

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