How are you taxed
Being self-employed means you will need to know how you taxed, why you are taxed and how to reduce your tax. All individuals and business’s in the UK need to pay tax. This tax is calculated by the amount of profit you make.
Profit = Income – expenses
The amount of tax you pay is dependant on the level of profit you make but don’t be to concerned about that just yet. All you need to know is that the lower the profit you make the less tax you pay.
How to reduce your tax
Before you can understand how you are taxed you need to understand how you are taxed through CIS.
In the UK we all get something called a tax free allowance. The tax free allowance is an amount of money we are able to earn before we have to start paying income tax. This amount changes from year to year but for 2017/2018 the tax free allowance is £11,500.
This means that you are able to earn £11,500 before you pay any tax at all. However, under the CIS scheme your client / contractor deducts your money at source and sends it to HMRC each month. HMRC stores this money under your UTR number until your end of year tax return is submitted (we can do this for you). If you earnt under £11,500 in that tax year you get the whole amount back. But, if you earnt between £11,500 – £45,000 and 20% tax was deducted at source with no business receipts you would due back £2,300 (£11,500 x 20%).
Again, you are taxed on your profits not what you are paid by your client / contractor. So, the more you collect you business receipts the less tax you will pay.
The important thing to know now is how you can reclaim your over paid tax.