9 POINTS WHY YOU MIGHT PAY HMRC MORE THAN YOU THINK
Do you really know how much you are paying HMRC? If you’re self-employed, you pay 20% tax on your profits and £2.75 a week on national insurance right?
WRONG!
You probably know that you will have to pay tax on your profits if they are more than your annual allowance (currently £10,000) and that will be at 20%. So if your profits are £20,000 in the year the amount of tax you would pay is £2,000 or 20% of £10,000 (£20,000 less your personal allowance).
Unfortunately HMRC don’t stop there. They want you to pay national insurance, but you might say I already pay that at £2.75 a month or £143 a year. True, but that’s only a small amount of what they want – the more you have earned the more they want, the extra amount being based on your profits.
In the same way as income tax, they allow you to earn some profit without paying any NI – currently £7,956. Any profits above that are charged.
Notice, this is less than the income tax personal allowance, so even if your profits are only £10,000 you will still need to pay HMRC.
So how much do they want – 9%.
Applying that to the profit above you would make a further payment to HMRC of £1,084. Total due £3,227 and not £2,000 as you might have thought!
As a self-employed person you can’t avoid paying this, but you can ensure that your profit is truly reflective of all the cost you have incurred by claiming for all possible expenses. If you need help in knowing what is the correct profit then you can either do the research or short circuit all that and talk to an accountant.
