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#1 12-06-06 17:58:15

driver69
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what is meant by tax deductable?

Forgive me if this sounds like a dumb question but what is meant exactly by tax deductable?

I have never been self employed so know nothing about tax or such things.  When something is deductable does that mean the cost of the item is taken off your tax bill or just part of the cost?

Hmm maybe if I am going to go self employed, a part time course may be in order.

12-06-06 17:58:15

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Re: what is meant by tax deductable?



#2 12-06-06 18:10:57

driverpete
Verified Member
From: Nottingham
Registered: 06-02-06
Posts: 457

Re: what is meant by tax deductable?

Hi Driver67,
Why should you think yourself dumb if you've come across something for the first time? Put very simply Tax Deductible means that you can deduct that amount (e.g franchise fees, stationery, etc.) from your income so that you only get taxed on what's left. I would recommend getting in touch with your local Inland Revenue Business Support team and getting yourself onto one of their free workshops for the newly self employed. They're very helpful and full of useful tips and information.


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#3 12-06-06 18:14:28

kjs
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From: Rossendale Lancashire
Registered: 20-05-06
Posts: 976
Website

Re: what is meant by tax deductable?

Hi. It means that you can claim a percentage of the VAT back when you have your books sorted for Income Tax, A good accountant will sort it for you.

All you need do is, Get a receipt for everything you buy, fuel, road tax' having your car serviced, tyres , even airfresheners.Anything that you buy for your buisness. Don't forget to book down what you spend and keep the receipts.

kjs

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#4 13-06-06 06:26:27

bigred
Verified Member
From: Kent
Registered: 25-02-04
Posts: 1,592
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Re: what is meant by tax deductable?

Hi kjs,

It's not actually VAT that you get deducted unless you are registered for VAT and then you also have to pay VAT on your turnover, which is not something anyone wants to get involved in neutral neutral neutral.

A simple example would be you do £30,000 of lessons in the year.
Your expenses which are the tax deductable bit - Car, petrol, stationery, advertising, phones, etc (does anyone have a list of allowable expenses? ) come to £10,000
You profit is therefore £20,000
Fortunately you should have a personal tax allowance which reduces your taxable profits  by about £5,000 to £7,000 (this does vary)

Income Tax bands are -

Starting rate: £1 to £2,150  10%
Basic rate: £2,151 to £33,300  22%
Higher rate: £33,301 and above 40%

So if you have £20K profit and a £5K personal allowance you will be taxed on £15K

£215 @ 10% tax rate
£2827 @ 22% tax rate

Total tax £3,042

On these very basic figures you will see that you probably need to put about 10% of your income aside to pay your tax bill. You can be much better advised by a tax expert or accountant, they can often help reduce your overall tax bill despite their charges.

good luck with it all.

Regards,

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#5 13-06-06 07:39:14

jr
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Registered: 29-10-05
Posts: 79

Re: what is meant by tax deductable?

Don't forget the class 4 national insurance contributions which are either 8 or 10% of your taxable income. Someone on here will know exactly how they are worked out.
John

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#6 13-06-06 09:24:18

sue martin
Verified Member
From: National area franchises
Registered: 21-01-05
Posts: 333
Website

Re: what is meant by tax deductable?

Don't forget the class 4 national insurance contributions which are either 8 or 10% of your taxable income. Someone on here will know exactly how they are worked out.
John

Class 4 National Insurance is calculated pretty much the same way as Income Tax, the allowance is £5035 and above that until £33540 you pay 8%,
Sue


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#7 13-06-06 10:12:55

driver69
Guest

Re: what is meant by tax deductable?

Thanks guys, I understand clearer now.

#8 13-06-06 10:18:19

markA.d.I
Guest

Re: what is meant by tax deductable?

I would just get a good accountant, i went and met mine as i had no clue what was involved, costs about £250, i just printed off month by month what i had earned and spent ( i mean every little thing related to driving!).

Passed that into him with bank statements and bobs you're uncle !

I personally think i would rather be out teaching than doing sums !, you could earn the cost of an accountant in a day or so, and it would probably take that long to do the admin !

You do the maths !

#9 13-06-06 10:49:50

kjs
Verified Member
From: Rossendale Lancashire
Registered: 20-05-06
Posts: 976
Website

Re: what is meant by tax deductable?

Hi Big Red. Thanks for that. Sorry if I miss led anyone, Was posted with the best of intentions.

kjs

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#10 13-06-06 11:23:57

markA.d.I
Guest

Re: what is meant by tax deductable?

We know that KJS ................ dont worry about it mate !

#11 13-06-06 13:19:07

Karenadi
Guest

Re: what is meant by tax deductable?

Agree Mark: much easier to take bag of paper to accountant, and when it comes back is accounts: easy. 

#12 13-06-06 18:09:06

sparkle
Guest

Re: what is meant by tax deductable?

Ohh yes im also loving Colin my accountant big_smile my saviour big_smile

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