I'm a freelance designer in the UK. What percentage of my pay should I be putting away for tax?
Up to now I've been putting 0.27% of every payment cheque I recieve into a high interest account and not touching it, ready for the tax bill. I've a feeling this should probably be a bit more. (I worked out the 0.27% from what I used to lose from my pay cheque when I was in a staff position).
Last year I earned about 52k, I don't know if that makes any difference to the tax bracket I'm in..?
Answers:
First you need to work out what your average annual earnings less expenses will come to. You have mentioned 52K for last year, but it is not clear whether you have deducted your allowable expenses, such as travel expenses, tools, materials, telephone calls, premises, work clothes, etc.
Anyway once you have done that and come up with a figure, note the following:
The first £5,035 is your non taxable personal allowance
The next £2,150 is taxed at 10%, i.e £215
The next £26,115 is taxed at 22% i.e £5,745.30
All amounts after that are taxed at 40%, so taking your figure of 52k, you would have a further £7,480 tax to pay; so your total tax bill will be £13,440.30, which is approximately 26% of your earnings, so on the face of it the 27% you are currently putting away should cover your income tax bill, but not your your National insurance bill. I suggest you put a further 7% of your earnings away to cover this.
i used to freelance and used to put away 10% of every bill.
it all depends on your expenses and claimable costs etc
am sure an accountant can answer you better
go to the inland revenue site for the tax brackets - minimum tax is around 25% or something then it goes to 40% then they want blood and limbs etc hehe
I think you need to get a good accountant, if you're earning that sort of money. Not only will they help you sort out tax and tax brackets, they will also advise you on tax avoidance (not evasion because that's illegal!) and what you can offset against tax. It could work out to be profitable for you.
Yes 27% is about right. Have you also put away for VAT? Inland revenue site is excellent for advice and help as is Business link google them to get to their sites
good luck
You will need to make provision for tax at 40% on any earnings above 40k. In your case, salt away an extra amount of about 4.8k (40% of 52k-40k). You will also be taxed at 40% on all that interest you're getting from that savings account, so make some provision for that too. And don't forget to pay your NI contributions, but that is probably best done each month.
It is entirely dependent on the level of taxable net profits, rather than income - bear in mind that as a sole trader you may have more allowable business expenses than you did as an employee.
Do not forget, you must register for Class 2 & 4 self-employed NI contributions (assuming you are not below the de minimis limits) within 3 months of the end of the month you start the business.
http://www.businesslink.gov.uk is useful, particularly the beginner's guide to tax and accounts. There is useful guidance on basic account keeping which will help you determine roughly the correct amount of tax and NI to set aside for your particular business and profit level.
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Last year I earned about 52k, I don't know if that makes any difference to the tax bracket I'm in..?
Answers:
First you need to work out what your average annual earnings less expenses will come to. You have mentioned 52K for last year, but it is not clear whether you have deducted your allowable expenses, such as travel expenses, tools, materials, telephone calls, premises, work clothes, etc.
Anyway once you have done that and come up with a figure, note the following:
The first £5,035 is your non taxable personal allowance
The next £2,150 is taxed at 10%, i.e £215
The next £26,115 is taxed at 22% i.e £5,745.30
All amounts after that are taxed at 40%, so taking your figure of 52k, you would have a further £7,480 tax to pay; so your total tax bill will be £13,440.30, which is approximately 26% of your earnings, so on the face of it the 27% you are currently putting away should cover your income tax bill, but not your your National insurance bill. I suggest you put a further 7% of your earnings away to cover this.
i used to freelance and used to put away 10% of every bill.
it all depends on your expenses and claimable costs etc
am sure an accountant can answer you better
go to the inland revenue site for the tax brackets - minimum tax is around 25% or something then it goes to 40% then they want blood and limbs etc hehe
I think you need to get a good accountant, if you're earning that sort of money. Not only will they help you sort out tax and tax brackets, they will also advise you on tax avoidance (not evasion because that's illegal!) and what you can offset against tax. It could work out to be profitable for you.
Yes 27% is about right. Have you also put away for VAT? Inland revenue site is excellent for advice and help as is Business link google them to get to their sites
good luck
You will need to make provision for tax at 40% on any earnings above 40k. In your case, salt away an extra amount of about 4.8k (40% of 52k-40k). You will also be taxed at 40% on all that interest you're getting from that savings account, so make some provision for that too. And don't forget to pay your NI contributions, but that is probably best done each month.
It is entirely dependent on the level of taxable net profits, rather than income - bear in mind that as a sole trader you may have more allowable business expenses than you did as an employee.
Do not forget, you must register for Class 2 & 4 self-employed NI contributions (assuming you are not below the de minimis limits) within 3 months of the end of the month you start the business.
http://www.businesslink.gov.uk is useful, particularly the beginner's guide to tax and accounts. There is useful guidance on basic account keeping which will help you determine roughly the correct amount of tax and NI to set aside for your particular business and profit level.
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