Tax - Paying Yearly

Tax - Paying Yearly

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If someone registers as self-employed and gets paid monthly however their total payments are below or just over the allowed threshold can they not pay any tax through out the year and then just sort it out with their return in April?

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By qhas
01st Sep 2015 19:02

Tax Paying yearly
They are taxed on their profits not their drawings

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Replying to lionofludesch:
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By StaceyWilkinson
01st Sep 2015 19:16

Is that even the case if their drawing are salaries?

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By johngroganjga
01st Sep 2015 19:33

Someone self employed cannot pay themselves a salary.

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By rwb
01st Sep 2015 19:49

Yes

A self employed individual could take no drawings at all and tax bill would be the same, drawings are not deductible against profits.

When you say 'salaries' do you mean a director taking a salary from their own company?

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By emanresu
01st Sep 2015 20:22

Just clarify something, SW

"gets paid monthly" by whom?

 

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Replying to SXGuy:
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By StaceyWilkinson
01st Sep 2015 20:40

Apologies I haven't really explained myself to well. I will try again.

An individual who is not employed or self-employed wishes to start a business which will mainly supply labour/a service.
They will be paid weekly/monthly by their clients.
They wish to draw money from the company to cover their wages as such.

How will this be looked at with regards to tax?
I understand people saying you only pay tax on the profits but surely an element of tax will need to be paid for the money the individual has drawn for themselves as a wage?

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Replying to frankfx:
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By teresarose
01st Sep 2015 21:18

Confusion

Hi

If there isn't employment (via their own company) or self-employment how can the business be run.  Either an individual sets up a business and registers as self employed or the individual sets up a company. 

For the self employed the individual pays tax on their profits (turnover minus expenses not drawings).  For the company the directors wage is allowable as a deduction.  The company pays corporation tax on its profit, the director may or may not be taxed on their wages under PAYE. 

This is basic knowledge and I hope that this isn't a prospective client. 

 

 

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Replying to frankfx:
By Paul D Utherone
01st Sep 2015 21:39

Well before anyone else says it

StaceyWilkinson wrote:
Apologies I haven't really explained myself to well. I will try again. An individual who is not employed or self-employed wishes to start a business which will mainly supply labour/a service. They will be paid weekly/monthly by their clients. They wish to draw money from the company to cover their wages as such. How will this be looked at with regards to tax? I understand people saying you only pay tax on the profits but surely an element of tax will need to be paid for the money the individual has drawn for themselves as a wage?

 ... ask your accountant, because if it's you and you're trying to deal with this without an accountant you are riding for a massive fall!.

Will they be trading through a limited company or just on their own account as self employed?Do you understand the difference between the two?Will they really be self employed or taking a number of employments?Might IR35 be an issue?Do you know what IR35 is?

If they are a director of their own limited company that is supplying their services to others then the company will need a PAYE scheme to tax the salary that they draw, and that salary will be an allowable deduction in the company which will pay tax on its profits.They would probably also want to be considering drawing some funds by way of dividend from the company, but payment of dividends is subject to its own set of rules, you cannot just take money out and later say 'that was a dividend'. Dividends are not a deduction from the company's profits for tax purposes, and the rules on taxation of dividends change from next April

If they are not operating through a limited company, but are self employed,and presuming the contracts are properly written so that the engagements are not just a series of employments where the 'client' should be operating PAYE,then money drawn from the business by the proprietor is not a deduction from profits for tax purposes, just a drawing against profits to be taxed. You will need to submit a tax return with self employment pages setting out the profits and any adjustment for tax purposes. Those profits are self assessed and subject to different rules to determine what is assessed when pending on  date to which you make up the accounts if other than 5 April.

Tax on the first self assessment year is paid on 31 January following the tax year end. At the same time 50% is paid on account of the liability for the following tax year and another 50% on 31 July. When you do the return/self assessment for year 2 any balance over and above the tax paid on account is payable on 31 January after the 5 April tax year end of year 2, plus 50% on account for year 3 ... and so it goes.

Happy you can handle all that?

 

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Replying to frankfx:
By johngroganjga
02nd Sep 2015 09:20

Answers

StaceyWilkinson wrote:

An individual who is not employed or self-employed wishes to start a business which will mainly supply labour/a service.

So the individual needs to decide, preferably with professional advice, whether to trade through a company or on their own account. My next answers will assume that they will be trading on their own account, as you refer to them being self employed. If they decide to trade through a company the answers will be very different.

StaceyWilkinson wrote:

They will be paid weekly/monthly by their clients. They wish to draw money from the company to cover their wages as such. How will this be looked at with regards to tax?

The drawings from the business (I assume you mean business rather than company) will not be looked at with regards to tax at all.  They are nothing to do with tax. All that matters for tax is the profit, without deducting any payments the business makes to its proprietor.

StaceyWilkinson wrote:

I understand people saying you only pay tax on the profits but surely an element of tax will need to be paid for the money the individual has drawn for themselves as a wage?

No. Nothing could be further from the truth. See my previous answer.

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Replying to Mr Hankey:
By Paul D Utherone
01st Sep 2015 21:59

In which case I should have stopped at

fawltybasil2575 wrote:

In intending no offence, I think it will assist our helpful contributors if they understand your own role in relation to the company to which your enquiry relates.

The following link to your previous, and first, question on AWEB should help clarify matters for them.

https://www.accountingweb.co.uk/group-thread/cis-sub-contractor-subcontractor.

Basil.


 ... ask your accountant.  :)
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Replying to Lucy N:
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By StaceyWilkinson
01st Sep 2015 22:50

Currently in the process of seeking new accountant as current accountant has been most unhelpful and been taking payments for work they have not then carried out, hence why I have asked the questions here in the hope of some speedy and helpful replies.

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By Democratus
02nd Sep 2015 09:08

@ Stacey

I do not handle clients as I work commercially for industry, but in defence of my fellow members we often struggle to determine who we are responding to and with the quality of the information in the original question.

With respect to what you have asked, once it was clear that you were not an accountant but a member of the public seeking some clarity on issues which are complicated then you have been given good advice by Aweb members. You need to understand the differences between SE and PAYE, also the NIC issues. Appreciating that you are between accountants you really should find one soon. Ask your friends for a recommendation, often the best route or if you reveal a approximate location then perhaps an Aweb member may be able to work with you.

 

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By emanresu
02nd Sep 2015 09:23

StaceyWilkinson wrote

StaceyWilkinson wrote:
Apologies I haven't really explained myself to well. I will try again. An individual who is not employed or self-employed wishes to start a business which will mainly supply labour/a service. They will be paid weekly/monthly by their clients. They wish to draw money from the company to cover their wages as such. How will this be looked at with regards to tax? I understand people saying you only pay tax on the profits but surely an element of tax will need to be paid for the money the individual has drawn for themselves as a wage?

SW, you seem to be fundamentally confused - and you are making it more confusing by initially  writing about a self-employed person (in your first post) and then (above) talking about a business - and then a company.  You've not answered my question, either - which I posed as I believed that previous replies might have, understandably, assumed that your "get paid" referred to you being paid out of the proceeds of self-employment, rather than referring to payments from customers.

You may need a new accountant, but more pressingly you need to understand the fundaments of how whichever style of business you are involved in works financially.

 

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RLI
By lionofludesch
02nd Sep 2015 09:51

Concept

Well done, ladies and gentlemen.

I'm still struggling with the concept of someone "registering as self employed" yet being "neither employed nor self employed."

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Replying to gogzyb:
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By bernard michael
02nd Sep 2015 09:56

Perhaps they sit on a cloud

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RLI
By lionofludesch
02nd Sep 2015 10:16

With all due respect .....

With all due respect to the OP, this thread sums up the difficulty I have with some of the posts we get from querists outside the profession.

You need to have - as a minimum - a sufficient knowledge of the principles involved to understand the answers you're given.

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