Income Tax Actions/Considerations
When running a business or operating as a sole trader it is important - indeed one of the most important aspects of running any business - that all matters relating to the paying of Income Tax are dealt with in the most professional and efficient manner.
Indeed matters of Tax, the payment of and the recording of, are of such importance that they can warrant the inspection and attention of Her Majesty's Revenue and Customs.
You must ensure that at all times you are both charging and paying the correct amount of Tax (Value Added Tax on goods and services) and also that you are keeping detailed accounts so that all transactions that have tax added can be properly audited at a later date.
When Do I Pay Income Tax?The general rule of thumb is that you should be paying Income Tax on any money you earn be it as an employee of a company, a company director or owner, or sole trader working independently.
Income Tax is the required tax on all salaries and income - hence the name - generated and therefore by law liable to have a taxable amount set against it.
Income Tax, Earnings and SavingsIt does not matter if the money you have is a salary, earnings generated from another source or the result of savings in your bank or building society account. The simple fact of the matter is that any such money is liable to attract Income Tax and in the case of bank and building society accounts this tax can be deducted at source without any intervention from you as the person responsible for such accounts.
You are required to pay Income Tax on your salary if you are employed and thus far your employer will automatically deduct such tax and National Insurance from your salary leaving you with the so-called 'Net' figure. The 'Net' sum is the amount of money paid into your bank or building society after your employer has deducted tax, National Insurance and any other deductions such as pension scheme payments, Union fees etc.
If you are a share holder and receive dividends as a result of shares then these payments too attract the payment of Income Tax.
Being Self-EmployedIf you are a sole trader or company director then you may be self-employed. At this time you are responsible for the payment of your own Income Tax and National Insurance - unless the company pays you a director's salary in which case the company will pay you in the same way as any other employee issuing you with a pay slip that will detail deductions made to your salary prior to payment being made to your bank. This figure will be your 'Net' salary.
Some company directors choose to pay their own Income Tax and in doing so are required to do so after having filled out a 'Tax Return'. At the time of filling out a 'Tax Return' a sole trader or company director can claim back any monies for fuel, travel and accommodation or other expenses which they may have incurred providing that they can prove such expenses were incurred. It is necessary to produce receipts, invoices and the likes in order to substantiate a 'Tax Return'.
If you are self-employed or are starting out as a sole trader then it is important to have an understanding of the whys and wherefores of paying Income Tax. Many people fall foul of the legislation regarding the payment of such tax and can find that they are in receipt of requests from Her Majesty's Revenue and Customs (HMRC) to make up for shortfalls in the payment of tax.
If you are in any doubt as to how your Income Tax should be paid then you should speak to your employer if he or she pays your salary, or consult with your financial advisor or accountant if self-employed or a sole trader.
You can also visit Her Majesty's Revenue and Customs' website at www.hmrc.gov.uk.