Self employed tax & NI

[funkyboogalooo]

I have recently left my full time paye employed status to become self employed. Now there is only a small risk with this venture as I am guaranteed a minimum eraning of 30k from a silent partner.
So here's the rub. With minor expenses going out such as working from home, pc, phone etc roughly what % income tax am I likely to pay at year end? For ease lets say no expenses so I earned the full 30k.
Secondly my class 1 NI used to cost me about £260 in my PAYE job but now I am being told by the NI people that I only need to pay class 2 which is £2.10 per week. That means I will be roughly £250 a month better off. Can this be right? I hope so as the present Mrs Boogaloo has said I can buy a new bike if it is.
Mike

[magic torch]

I'm self employed and pay class 2 NI by direct debit.

[Touching Cloth]

That would be nice, but unfortunately not quite as simple as only paying class 2.

a govt website said:

: If you're self-employed * you pay 'Class 2' NICs at a flat rate weekly amount of £2.10 * you also pay 'Class 4' NICs as a percentage of your taxable profits - you pay eight per cent on annual taxable profits between £5,035 and £33,540 and one per cent on any taxable profit over that amount * if your earnings in the 2006-2007 tax year are expected to be less than £4,465 then you may be entitled to the Small Earnings Exception (SEE), meaning you don't have to pay any Class 2 NICs - you can apply for SEE for the 2006-2007 tax year on form CF10

Quick calclation would mean that on straight forward £30k you would pay class 4 Nics on £24,965 which at 8% would be £1997 or equivalent to £166 per month (exept you won't pay it monthly so, as with your tax you will need to remember to put it by)

However you could look at setting up as a Ltd company from the outset and pay yourself in dividends which does get around NI, whole heap of questions to answer before you would know if this is definitely the way to go for you, so best speak to an accountant (or wait for Eric to turn up )

[magic torch]

Touching Cloth said:

That would be nice, but unfortunately not quite as simple as only paying class 2.

Would be nice if that was all I paid.

You won't be paying tax on the 30k if there's business expenses to come off it first.

I roughly equate mine to my earnings minus expenses, then run that figure through a tax & NI calculator. Not quite that simple but it does give you a very rough figure.

[Touching Cloth]

LOL, I just try to stick away an amount that feels slightly painful every month and hope that that covers it.

oh heck who am I kidding, I make virtually no allowances for my tax and scrabble around for cash, usually combined with a mad flurry of invoicing anyone I can, to try to rustle up the money when the time comes



>> Edited by Touching Cloth on Friday 19th May 20:45

[magic torch]

Touching Cloth said:

oh heck who am I kidding, I make virtually no allowances for my tax and scrabble around for cash, usually combined with a mad flurry of invoicing anyone I can, to try to rustle up the money when the time comes

Not just me then.

I'm a 'head in the sand / optimist' type person. I try and forget I'm going to get a bill, whilst hoping that the next month will be better than the last giving me a cash surplus with which to pay the next tax bill.

If my wife is reading this, I do put some away, honest.

[Phil Dicky]

Touching Cloth said:

oh heck who am I kidding, I make virtually no allowances for my tax and scrabble around for cash, usually combined with a mad flurry of invoicing anyone I can, to try to rustle up the money when the time comes >> Edited by Touching Cloth on Friday 19th May 20:45

Tis the only sensible way to cover the tax bill

[funkyboogalooo]

Phil Dicky said:

Touching Cloth said: oh heck who am I kidding, I make virtually no allowances for my tax and scrabble around for cash, usually combined with a mad flurry of invoicing anyone I can, to try to rustle up the money when the time comes >> Edited by Touching Cloth on Friday 19th May 20:45 Tis the only sensible way to cover the tax bill

Yet strangely women have different views

[Eric Mc]

Hold on a second, you say you are guaranteed £30,000 income from a "silent partner".

Is this a bona fide business relationship then? Are you trading with this person at "arms length"? If this person is actually a partner in your new business, then money they put into the partnership might not be construed as genuine income for you. It would normally be considered as "Capital Introduced" or a "Loan" froma partner. Will this person expect any sort of financial reward for the money they are putting into your business?

Think very carefully about the arrangent you are setting up here and talk with an accountant to discuss the accounting and tax implications of what you propose to do.