trading profits. Instead a tax-standardised version of depreciation, known as capital allowances, may be claimed (see later). Trading and property income allowances Trading and property income allowances of £1,000 per annum are available. Individuals with trading or property income of £1,000 or less do not need to declare or pay tax on that income. Those with income above the allowance are able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance. Paying the tax The self-employed may have to pay tax and class 4 NICs
three times a year, namely: • 31 January in the tax year • 31 July following the tax year • 31 January following the tax year.
Under the cash basis, business profits are taxed on cash receipts less cash payments of allowable expenses. This may be more simple for the business owner to calculate. In addition, as the individual is only taxed on income actually received, they will not be subject to income tax on amounts paid late until those amounts are actually paid. Further details about the scheme: • Cash receipts include all amounts received in connection with the business including those from the disposal of plant and machinery. • Allowable payments include paid expenses but these still need to meet the existing tax rule of being wholly and exclusively incurred for the purposes of the trade. • Payments include most purchases of plant and machinery, when paid, rather than claiming capital allowances. • The interest payments restriction of £500 has been removed for 2024/25 onwards and any amount of interest can be deducted if incurred wholly and exclusively for the trade.
• Cash basis losses will be available to use in the same way as accruals losses, including sideways relief. The optional accruals basis requires an election by the business owner for the year in which it is to apply. The election will stay in place until revoked by the business. Do get in touch if you would like us to consider which scheme is appropriate for you and your business. Working out profits Not all of the expenses that a business incurs are allowed to be deducted from income for tax purposes but most are. It is important that you keep proper and comprehensive business records so that relief may be claimed. Non-deductible expenses include those which are not wholly and exclusively for the purposes of the trade - client entertaining and private expenses of the sole trader are common examples of this. Depreciation is another type of expense which is not deductible from
The first two payments are based on the income tax and class 4 NIC liability for the previous tax year (less any amounts deducted at source like PAYE) and the final
payment is the balancing amount. Capital allowances
When assets are purchased for the business, such as machinery, office equipment or motor vehicles, capital allowances are available. As with expenses, these are deducted from income to calculate taxable profit. The below allowances are available to both unincorporated businesses (using the accruals basis) and companies.
Running a Business
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