Getting to grips with the complexities of the tax system can be a little tricky and overwhelming to navigate, particularly for small business owners and the self-employed. Understanding the basics of the tax system can really help you to manage your business finances, so let’s look at a few basics.
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Whether you are a sole trader or a business owner, you will be responsible for paying your taxes. There are a few different types of tax to consider, with what you owe the taxman depending on the amount of money you make each year.
- Income tax
You will have a tax-free personal allowance of £12,570, meaning you won’t pay tax on earnings up to this amount. Above this threshold, your earnings will be taxed depending on your income.
- National insurance contributions – NICs
As a self-employed person, you will also pay NICs. This means you will still contribute to your entitlement to benefits such as the state pension.
How to report earnings and pay your taxes
The tax year in the UK runs from 6 April to 5 April the following year. You will need to file a self-assessment tax return annually, which means you will need to detail and report your income, business expenses, and other information to HMRC. The trickiest parts may be calculating your allowable expenses, making sure your return is accurate, and ensuring your tax payment is ultimately correct.
Keeping track of your business expenses
One way to reduce your taxable income is by claiming business expenses. This could include things such as office supplies, travel costs, or even home utilities if you work from home. Keeping an accurate record of all your expenses will prevent you from overpaying your tax. Accounting firms such as www.randall-payne.co.uk/services/accountancy/worcester-accountants/ can assist with this.
The role of accountants
The right support will make the process of paying your taxes much smoother. Hiring a local expert, such as Worcester accountants, can help you avoid troublesome mistakes and keep your finances on the right track throughout the tax year.