Am I calculating my (UK) tax correctly?

Question

I'm self employed but have no turnover as such because I work as a full time consultant with the same company.

Am I right in saying that the first £5,035 that I earn is tax free?
Then the next £2,150 is taxed at 10%?
Then all earnings thereafter are taxed at 22% (until my earnings cross a certain threshold, which they won't!)?

So if I've earned £10,273 gross in the current fiscal year then am I right in saying that my current tax bill is £894? I pay N.I. separately.

It seems too low!

Thanks so much

I AM SELF EMPLOYED

Answer 1

Your tax calculation is basically correct.

You say you pay NI separately. This is probably only Class 2 NI which is currently £2.10 per week. You will also be liable for Class 4 contributions which are collected with your income tax. These are payable at a rate of 8% of your income over £5,035.

Answer 2

The “first” £5K you are not taxed for are calucated on a monthly basis. i.e., if you get paid £420 per month or less, you will not be paying tax for them. Hypothetically speaking, you should not be charged NI for those sums either.

Anything after that is deducted, again, on a monthly basis, though calculated as if that monthly paycheck will have been the same for the rest of the tax year.

It’s explained as easily as could on HMRC’s website:
http://www.hmrc.gov.uk/employers/rates_and_limits.htm

“
Pay As You Earn (PAYE)

Thresholds

The PAYE thresholds (the level of earnings at which tax becomes payable) are
£97.00 weekly
£420.00 monthly
These are the same as the earnings thresholds for NICs.


Rates

The tax rates are
Starting rate 10% up to £2,150
Basic rate 22% from £2,151 to £33,300
Higher rate 40% over £33,300

Tax codes starting with a K have a Regulatory limit of 50%.
The Regulatory limit is specified as a percentage of pay and so on, and restricts the amount of tax to be deducted from the pay in the period. Where for example, pay in the period is very low and the ‘normal’ operation of the K code would give rise to a very high tax liability, possibly even exceeding the pay and so on in the period, the overriding Regulatory limit will apply.
“

The whole purpose of PAYE (Pay As You Earn) is to deduct monies per pay-check, thus not creating complex tax calculations.

If your job pays you unsteadily, Take the time to file a Self Assessment tax return form at the end of the financial year. More info about tax returns:
http://www.hmrc.gov.uk/sa/

Hope this helps.

Answer 3

Whilst you say you are self-employed, the Revenue may consider that as you work solely for one business, that the business you are working directly for, are actually your employers, thereby insisting that you are assessed through your 'employers' business on PAYE and NIC. You need to also check into this. As for your original question, your calculation appears to be correct as others have confirmed.

Answer 4

It looks about right,but you may have deductible expenses which would lower your tax liability. You should consult an accountant . They are not that expensive and they make sure you claim any allowances to which you may be entitled.Incidentally their fees are also deductible!

Answer 5

I get confused as well I think it's supposed to spread out throughout the year so you don't earn £5035 and get taxed after you've earned that! They spread it out evenly! This website helps you work it out! http://www.hmrc.gov.uk/employers/iwt-workingout.shtml

Answer 6

if you've earned £10,273 your tax will be about 20% of your total wage.

National insurance is normally about 4%.

Answer 7

Yes, you are perfectly correct.

This is assuming that you have no other income such as interest on savings.