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Where Taxpayers and Advisers Meet

Sole trader

Rmfm1
Posts: 2
Joined: Sun Jul 28, 2019 9:04 am

Sole trader

Postby Rmfm1 » Sun Jul 28, 2019 9:09 am

Hi I've always subcontracted so have been pre taxed by cis. I've now set up my self and am responsible for my own tax. I'm not vat registered and am classed as a sole trader. So far I've turned of approximately £15000 with expenditure of approximately £9500 giving a profit of approximately £5500. As a sole trader which of these figures do I pay income tax on.
Regards
Richard

Jerome_Lane
Posts: 16
Joined: Mon Jul 22, 2019 10:13 am
Location: Camberley, Surrey
Contact:

Re: Sole trader

Postby Jerome_Lane » Mon Jul 29, 2019 9:07 am

You'll pay income tax and class 4 NIC on your taxable profits (currently the £5,500 if all your expenses are tax deductible. You have a personal allowance which is probably £12,500 so right now you may be in line for a repayment if CIS is being deducted. You can apply for gross payment once you get past £30,000 of gross income. Class 4 NIC starts once profits get past £8,632. You'll also have to pay class 2 NIC at £3 per week if profits are over £6,365. Your accountant or tax advisor should be able to tell you all this tho. Good luck!
Jerome Lane
Tax Advisor
jerome.lane@stewartco.co.uk
Stewart&Co.
Chartered Accountants
Telephone: 01276 61203

robbob
Posts: 2836
Joined: Wed Aug 06, 2008 4:01 pm

Re: Sole trader

Postby robbob » Mon Jul 29, 2019 10:05 am

Hi I've always subcontracted so have been pre taxed by cis.
Note you haven't fully been pre taxed when a deduction is made for cis - there is simply a fixed rate deduction that is deducted from your end of year tax bill. As you marginal rate of tax and class ni is 29% when profits are over pa allowance you can have 20% tax deducted and still owe money if you are expenses light - based on your numbers though it may be you have tax coming back.

Note your sales declared to hmrc are always the full value of sales invoices / work done before any cis tax is deducted - so if you do 20k of cis work and get 4k cis tax deducted and end up with 16k in your bank account/pocket - then your sales income is still the full 20k. The 4k is simply deducted from your final calculated tax bill for the year

Rmfm1
Posts: 2
Joined: Sun Jul 28, 2019 9:04 am

Re: Sole trader

Postby Rmfm1 » Tue Jul 30, 2019 12:51 am

To clear this up. I no longer sub contract so am not being deducted cis anymore. I'm solely responsible for my own tax. I am NOT vat registered and don't need to be as I don't hit the threshold. I am enquiring sole on self employment income tax. I'm aware its 20% and I have to declare as class 4 adjustment in my tax return I just need to know whether I am expected to pay tax on gross takings or profit after expenses.
Thanks
Richard

bd6759
Posts: 3107
Joined: Sat Feb 01, 2014 3:26 pm

Re: Sole trader

Postby bd6759 » Tue Jul 30, 2019 7:29 pm

You pay tax on your profits. That is the difference between your income and your expenses.

But you seem very confused. A sub-contractor on CIS is self-employed. The CIS just ensures that tax is paid. You will probably have paid hundredsvif not thousands of pounds too much tax over the years.

robbob
Posts: 2836
Joined: Wed Aug 06, 2008 4:01 pm

Re: Sole trader

Postby robbob » Wed Jul 31, 2019 9:32 am

I just need to know whether I am expected to pay tax on gross takings or profit after expenses.
As bd6759 confirms its tax on profits.

For clarity i will give an example that shows how profits are calculated - and how cis tax credit is given

Non cis sales 10,000
cis sales - gross value work done £5,000 - tax deducted £1000 - net amount received £4000

Expenses of business - allowable materials - allowable motor - allowable insurance etc - £9500 - Note cis tax taken from your income Is NOT an expense.
Note £9500 of expenses seems high for £15,000 of income - is there something included in your original figures that shouldnt be?

Ok
Gross sales= £10k+5k = £15,000 (full value of work done before cis deductions)
expenses £9,500
Taxable profit £5500

You then calculate your tax liability for the year with that profit of 5500 added to any other taxable income and the final step is to deduct £1,000 cis tax deducted from your calculated tax bill.
If your tax bill is Nil you will be due a refund of £1,000 being cis tax deducted.


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