self employment - putting money away for tax

[tigwig]

my hubby is working for himself as a builder and we are unsure about how much to put away for tax (still!) Once I have worked out all his expenses for materials and petrol etc do I deduct this off his labour costs and put away approx 25% of that or deduct 25% off the cost off everything including labour charges and materials?

[Ethel]

He pays tax on his income - his profits after deducting all expenditure.

So he does a job for �100. Materials cost �25. He pays tax on �75.

If you put 25% of that away you will more than cover his tax bill - not a bad thing to have extra set aside.
Don't forget he has his personal allowance before he pays income tax - �5435.
He also has allowable deductions - his business expenses. Protective clothing, mobile phone (he has a seperate one for business, I hope), vehicle costs and transport, depreciation of his tools, business insurance...

But putting 25% as described will give you a good margin and keep things simple.

[tigwig]

thanks Ethel I hoped this was the case its just made a difference of around �300!

[Ethel]

I'm sure you understand my example was very basic, just for illustration.

Remember to keep all receipts - depending on how many he has, think about using something like a poly pocket. One pocket per week / month.

Put a number on the back of each receipt and keep a written record in the polypocket.
1. Petrol. �30. 5/5/08...................................�30
2. Materials. �86.50 5/5/08.........................�116.50
and so on. If you do it each day it will take a very short time and will make your life so much easier in the long run.

[tigwig]

I do this already thanks Ethel I have a big folder with absolutely everything written down and organised into sections! It is time consuming but I agree it is necessary so I know where I am!

[jedimistress]

He will also have to pay 8% National Insurance contributions on all profit over around the �5,000 mark too. Tax 20% and NI at 8%. If does any subcontracting, a lot of the tax will be paid by his contractors.

[terambulan]

As self-employed you pay 40% on your net profit, (after exes). Its best to start a spreadsheet soonest to keep on top of your accounts.

Make friends with local tax office who will tell you how to fill in your tax return.

Keep Visa bills, bank statements, cheque stubs & bank paying-in slips for audit.

[terambulan]

I dont think you charge for 'labour costs' for yourself! You do list costs of labour when you employ someone. The trick is to balance the accounts by listing all your expenditure against your income for the year. You must show some profit for the Tax man as he will see your business as unviable.

If you earn more that �57k pyear (�4750pm) you will be in the VAT bracket.....that's another story!

[terambulan]

Hubby will get a NI bill quarterly for �25 approx to be paid instantly and unclaimable in his exes. Oh, and dont forget the monthly bank charges to add to exes.

[terambulan]

Incme Date Ttl Tools Food Petrol Servce Home
400 8/6 B&Q 50 50
8/6 Tesco 30 30
8/6 Esso 30 30
9/6 BT 30 30
9/6 Mortge 250 250
----------------------------------------------------------------------------
400 Jun 390 50 30 30 30 250
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Hope this helps....took me ages to type out...phew!

[terambulan]

I spent ages scheduling that.....and it didn't show as I typed it!

b****r

[Ethel]

You only pay 40% on profit above �34800, whether employed or self-employed. as I'm sure tigwig knows.

But just to clarify in case their is any confusion.

[terambulan]

I've done tax returns for last 10y and paid 40% on any profit no matter how low or high. Tax Office always accepted my figures

[Im a BusyBee]

Yes Ethel is correct(as usual) apart from new tax band width for 08/09 is now 36k before hitting 40%. My husband is in same position as yours but i am a Financial Director of my own company and have been in accountancy for 30 years (gosh makes me feel old!), please be guided by ethels answers as they are accurate.

[Im a BusyBee]

terambulan - im sure the tax office would accept your figures if you are paying 40% on all income, they would probably like a few more to do the same!

[merejeans]

Don't forget tigwig, that if you are working for your husband, and it seems that you are, you can be paid from the business, you can also claim the personal, tax free allowance of �5,000 plus, which takes it out of your husbands taxable income, therefore saving at least �1250 a year.

[Taylortax]

Yes, you can be paid by your husband for work in respect of his business, but the Revenue like to watch this one as it is often used for tax dodging! The money should be paid into an account in your name (not joint names) and should be "commensurate with the duties" - in other words he can't pay you vast sums for making a cuppa each morning and answering a few phone calls. Best thing is to jot down the time you spend doing whatever and work out a reasonable rate for the job. Of course, if you've aleady got an income, it might not be worth doing anyway.

[tigwig]

How do we go about this then? I do all his record keeping but it doesn't take me too long! I do work 15 hours a week myself as well don't know what difference this makes