Short Tax Return 2016/17
For Sole Traders with Turnover Below £82K
Ever wished it was Easier to oversee Self Employed Tax calculations?
My aim was to achieve just that with the below infographic & blog, so please do let me know if it helped you.
The good news is, You DO NOT NEED TO do these calculations yourself, when submitting your Tax Return Online, or have someone do that for you. The Online Submission system does all these for you BEFORE your return is submitted.
This is just to put your mind at rest, before you start dealing with your Tax Return.
Let's Get started. I wanted to give you a map that will get you from fear and confusion to clarity a lot quicker than reading through countless articles, blogs, forums, etc.
Due to the limited nature of a pretty visual design, there's only so much that can go onto the infographic, therefore this article is here to provide more detailed information. However, the visual is designed to help you remember, once you've read the article a lot easier, then otherwise.
So, The below is for you, if you are in the Short Tax Return 'Club', which means that your Turnover is below £82K per annum [in 2016/17 that is]
Let's get started:
When you are in this club, you are able to submit what they refer to a 'Short Tax Return' - sounds good right?
This is not very well advertised. The reason being: Regardless your turnover, you should keep records the same way whether you submit a Short or Full Tax Return.
This is because really, you do not know what your turnover will be until the financial year is over, and then, you don't want to go back to re-doing the records in a different way.
Fair Play. But, I'd like you to know, that below the £82K Turnover [in 2016/17 Financial Year] you can submit all your expenditure as 'One Line'. All your Income as 'One Line' and all your Capital Allowance/Expenditure as 'One Line'.
This is what us Pro-s refer to as a '3 line Tax Return'. AKA: Short Tax Return.
Now believe me, you will have a lot more than 3x lines on this tax return, plenty of pages and questions for you or us to answer and fill out. But what this refers to is that your Income & Expenditure can go down in just 3 lines in total.
What HMRC Asks you though, is that you still separate between Direct Costs, Overheads, and within these 2, more specifically:
e.g. if you have more than one type of Direct Costs, then separate those, and keep note of your Opening and Closing stock, if applies to your business.
Or Overheads, e.g. Differentiate between Rent, Stationery, Postage, Mileage, etc.
I'll let the below Infographic to do its job now, and will post the detailed explanation below.
SOLE TRADER: By this I mean that you are Self Employed, but not a Partnership or a Limited Company & You are:
- Not a company director & you don't receive dividends
- Not Employed or pay tax via PAYE - although you can be, in which case the rest still applies to you, only on top of your PAYE Income
- Not a Shareholder in a LTD Company ETC
So this Is about Your Sole Trader Earnings, that fall below the £82 K Turnover.
TURNOVER: This is the total money that you have invoiced or has came into your business, throughout the 2015/17 financial year in form of earnings - e.g. if you've put money into your business, that's not Turnover.
TAXABLE PROFIT: This is All your Turnover, less your Total Allowable Expenses [Incl. Direct Cost & Overheads], and Capital Expenditure [E.g. Assets]. So this is what you will get taxed on as your earnings.
CLASS 2 NI: This is The Basic Self Employed National Insurance, which is £2.80 per each week, so if you were Self Employed for a Full Financial Year, this comes to £2.80 * 52 = £145.60. Below £5,965 Taxable Profit you can choose to pay Class 2 NI voluntarily, but you do not have to(E.g. if you were self employed next to employment, or your first year as a Sole Trader)
INCOME TAX: So, Income Tax, you will pay 20 % on Taxable Profits, above £11K.
So If you've had say £15,000 Taxable Profits, you'll pay 20% on the £4,000 [ £15,000 - £11,000 allowance = £4,000]
£4,000 @ 20% = £800 = what you would be due to pay as income tax
Or, say you've had the full £32K Taxable Profit, then your Income Tax would be calculated as: £32,000 - £11,000 = £21,000 @ 20% = £4,200
CLASS 4 NI: So, The Class 4 NI has different threshold-bands then the Income Tax Bands. For 2016/17, Its rate is 9% between £8,060 - £43,000 and 2% above £43,000.
So if you did have £11,000 Taxable Profit, you would not need to pay Income Tax, but you would be due the Class 2 NI [calculated above] and the Class 4 NI @ 9% above the £8,060:
It would be calculated as such: £11,000 - £8,060 = £2,940 @ 9% = £264.60
If your Taxable Profit was £32K: £32,000 - £8,060 = 23,940 @ 9% = £2,154.60