FAQ's
What makes up taxable income?
What are capital gains?
When do I have to be Construction Industry Scheme (CIS) registered?
What are dividends?
Can I offset any of my costs against my income?
What are the UK Tax Year start and end dates?
What is the trading period?
What is interest?
What is National insurance Tax?
What types of income does the Self Employed Tax Calculator incorporated into its calculation?
What is PAYE income?
What is Payment on account?
What is self employed income?
What is VAT?
Calculations
What makes up taxable income?
Your taxable income is all streams of income you have earned in the UK as a UK tax resident added together on which UK tax rates are applied. Once calculated any tax deducted at source is deducted from the bill and the remainder if owed to the HMRC.What types of income does the Self Employed Tax Calculator incorporated into its calculation?
The Self Employed Tax Calculator incorporates most of the different types of income streams in the UK, however not all. The types incorporated include: PAYE Income, Self Employed Income, Dividend Income, Interest income, Additional Tax able Income and Capital Gains.Capital Gains
What are capital gains?
Capital Gains is income derived from selling an investment at a profit. A typical example would be a share sold at a higher price than the purchase price of the share.
What is the tax on capital gains?
A UK tax resident has a personal capital gains allowance, under which there are no taxes due. Any capital gains earned in excess of this threshold are subject to capital gains tax.CIS
When do I have to be Construction Industry Scheme (CIS) registered?
If you are typically working in the construction industry in a non-management role, you would need to become CIS registered. It is always best to confirm with the individual/company who will be paying you to check if that particular role requires CIS registration.How do I become CIS registered?
To become CIS registered you will need to contact HMRC with your NI Number. Inform them that you wish to enrol for CIS and they will guide you from there. Typically you’ll be given a Unique Tax Reference (UTR) number, which will then be linked to the UK CIS scheme. Once linked you shall receive a CIS card. You are required to have this card on your person any all times during work.What happens with my pay when I am CIS registered?
When you are CIS registered the individual/company who is paying you is legally obliged to deduct 20% of your pay at source in the form of tax withheld. These funds are then paid by the individual/company to HMRC as tax deducted on your behalf.What is my yearend tax responsibilities being CIS registered?
At tax year end you will be required to perform your self assessment tax return. This return needs to be lodged with HMRC and any outstanding taxes need to be paid. In your return you will have to declare all of your earned income, declare all of the expenses you wish to off-set against this income and declare all the tax which has been deducted at source. HMRC shall then send you a tax bill if there are any outstanding taxes to pay.How will I know what taxes have been deducted at source?
This can either be checked on the CIS guide or you can request statements from the individual’s/company’s you have worked for during the course of the tax year.Dividends
What are dividends?
A dividend is income derived from net profit of a company in which you have shares. Dividends are typically paid out Quarterly, Half yearly or yearly and you should receive a dividend certificate along with this payment.
Dividends are paid to you as a net figure with a 10% tax already deducted – referred to as a tax credit.
Net dividends should be entered into the Self Employed Tax Calculator.
What are the taxes on UK dividends?
If you are a higher income earner (exceeding the higher PAYE tax threshold for the year) a further 32.5% tax is due on your divided Income.
The gross dividend will be considered for tax purpose and then the tax credit (10% already paid) will be offset against any tax due.
Net dividends should be entered into the Self Employed Tax Calculator.
Expenses
Can I offset any of my costs against my income?
There are two types of expenses that you shall incur when working as self employed; Reimbursable expenses and Claimable expenses. Reimbursable expenses are claimed back from your client and do not form part of your income and claimable expenses are those you can off-set against your earned income.
It important to note that claimable expenses can only be off-set against your self employed income, and if these expenses exceed your self employed income you may NOT off-set these against other types of income.
What are claimable expenses?
Costs you have incurred for the purpose of trade which are allowed to off-set against self employed income. An outline of the more common of these with explanation can be found in our expenses area.What are reimbursable expenses?
These are monies reimbursed to you by a client for expenses you have incurred on their behalf and do not form part of your taxable income.General
What are the UK Tax Year start and end dates?
The UK tax year runs from the 06 April through to the 05 April each year over consecutive years. These periods and the tax thresholds are set by the HMRC.Who/What is the HMRC?
The HMRC is an acronym for Her Majesties Revenue and Customs. The HMRC is a government body who govern all UK tax affairs. You may visit their website for further information.Guide Definitions
What is the trading period?
The Trading Period is the UK tax year. This will be the period of time in which the HMRC will consider your earnings and require you to settle outstanding tax on these earnings.Interest
What is interest?
Interest income is typically derived from savings held in a personal bank account, but can also come from other sources.What are the taxes on interest?
Interest is typically paid net of 20% tax to you and if you’re a higher income earner (exceeding the higher PAYE tax threshold for the year) a further 20% is due on the gross amount.
Net Interest should be entered into the Self Employed Tax Calculator.
National Insurance
What is National insurance Tax?
There are two types of National Insurance (NI) tax, Employees NI (EENI) and Employers NI (ERNI).NI tax is owed on all income earned from working as a UK tax Resident in the UK.What is Employers NI (ERNI)
As an employer you have a NI liability payable to the HRMC based on the gross salaries you pay your employee’s. This is a cost to the company and is not deducted from an employee’s pay, but contributing may be reflected on the payslip.What is Employee’s NI (EENI)
This tax is owed on any income earned in the UK while a UK tax resident. If you are in full time employment, then your employer will deduct this tax at source and you will receive a payslip as a summary of these deductions.
If you are self employed you will need to declare this income to the government at tax year end and they will issue you with a NI tax bill you will need to pay.
Other Income
What types of income does the Self Employed Tax Calculator incorporated into its calculation?
The Self Employed Tax Calculator incorporates most of the different types of income streams in the UK, however not all. The types incorporated include: PAYE Income, Self Employed Income, Dividend Income, Interest income, Additional Tax able Income and Capital Gains.What types of income are excluded from the Self Employed Tax Calculator’s tax calculation?
The Self Employed Tax Calculator incorporates most of the different types of income streams in the UK, however not all. The Types of income we do not incorporate include: Trust Income, Foreign Income, Debentures and any other type not listed on the types we do cover.
It is important to note that even though those types are not incorporated into this guide, our partner ICAEW registered accounting firm will be able to include these on your year end return should you wish to use them.
What happens if I use the guide, but have income outside of the range of the guide?
If you have income falling outside of the scope of the guide and still wish to use this guide we recommend that you keep concise records of these earnings and when your year end tax return is performed by our partner ICAEW registered accounting firm, they shall be able to include these earnings. Note the tax liability on the guide will not include these additional liabilities and you may have to set aside an additional portion of funds to settle this year end tax liability.What is included in additional income?
Additional income has been included to cover other streams of typical income that has not been included in the categories already mentioned. This would include simple investment income and rental income.
These forms of incomes typically do not have any taxes deducted at source, therefore should be entered into the Self Employed Tax Calculator as the received (gross) figure.
What is the tax on additional income streams?
Additional income shall be added to your Self Employed income and treated in the same way for tax purposes.PAYE
What is PAYE income?
PAYE Income is income that has been paid to you during the tax year from which PAYE tax and National Insurance has been deducted. All these details can be found on your payslip.What is a payslip?
Document given to you by an employer as a summary of Gross Taxable Income, PAYE Tax & National Insurance paid and your Net Income received.What is PAYE Tax?
PAYE is an acronym Pay As You Earn. This tax is owed on most streams of income earned while a UK tax Resident. If you are in full time employment, then your employer will deduct this tax at source and you will receive a payslip as a summary of these deductions.
If you are self employed and/or have other streams of income, you will need to declare this income to the government at tax year end and they will issue you with a PAYE tax bill you will need to pay.
Payment On Account
What is Payment on account?
When the HMRC sends you the tax bill for the respective tax year, they will also require you to make an additional "payment on account" for the tax year that you are currently in. The payment on account bills are 50% of your most recent tax bill on the first payment on account due date and another 50% on the 2nd due date.What are payment on account due dates?
1st Payment on account - 31st January - 9 months after the respective tax year end (06 April).
2nd Payment on account - 31st July - 15 months after the respective tax year end (06 April).
Self Employed
What is self employed income?
Self Employed Income is earnings that you have that are NOT taxed at the source. You are required by law to declare these earnings in a Self Assessment Tax Return (SA100) by the due dates outlined by the HRMC, and then settle the outstanding tax due to the HMRC. Failure to do this can result in penalties and fines.What are the Self Assessment Tax return due dates?
31 October - Paper returns - 6 months after the respective tax year end (06 April).
31 January - Online returns - 9 months after the respective tax year end (06 April).
What are the deadlines to settle my outstanding tax liability?
Once the return has been submitted, you will need to settle your liability by the 31 January (due date of the online return). Along with this payment you shall need to settle an additional “payment-on-account”.VAT
What is VAT?
VAT is an acronym for Value Added Tax. VAT is chargeable on most goods are services, and if your turnover exceeds the VAT threshold, you will need to begin charging Vat on your invoices to your clients.When do you legally have to register for VAT?
Once your turnover within a 12 month trading period has exceeded the VAT threshold you shall be required to either start changing VAT or prove that you are VAT exempt. Once registered you will have to charge your clients VAT and you will need to perform VAT returns. These thresholds are set by the HMRC each tax year.
Being VAT registered allow you to off-set any VAT paid on expenses against the VAT charged, essentially reclaiming the paid on expenses VAT back.
Once VAT registered you may then apply to be Flat Rate VAT registered.