Income when you work for yourself
If you're a sole trader selling goods or services then you're self-employed. You need to declare any income from your self-employment on your tax return.
When you pay tax on this income you'll need to make a separate payment as it won't be covered by your ITIS effective rate you have when you're employed.
Employment status: self-employed or employed for tax?
Meaning of 'trade'
Declaring your self-employed income
If you don't have a tax agent who prepares and sends in your accounts you need to complete the self-employed section of the personal tax return. This information includes:
- your gross business income
- any business expenditure
- your net profit or loss for the year
Covid-19 co-funded payroll scheme
If your business received any co-funded payroll scheme payments from the government these must be declared as part of your gross business income. Wages that you paid to staff that were funded by these payments are a deductible business expense in the same way as wages that are paid out of your normal day to day running of the business.
Self-employment: tax form help
Keeping a record of your business income and expenditure
You must keep accurate records of your income and expenditure if you're self-employed. You will need these when you or an accountant prepares your accounts.
Record keeping if you're working for yourself
Getting help with your accounts
Depending on the nature, turnover or profit of your business we may ask for your accounts to be prepared by a qualified book keeper or accountant.
Business expenditure
If you're self employed you will have various costs to running the business. You can take off these costs to work out your taxable profit as long as they are allowable.
Allowable expenditure
Expenses are allowable for tax purposes if they were incurred wholly and exclusively for business purposes. This includes:
- the cost of goods bought for the business, for example materials bought by a carpenter
- the prime costs of running a business asset, for example the cost of diesel or petrol used by a taxi driver while on the road on business
- wages and salaries of employees
- heat, light and cleaning of business premises
- repairs to and maintenance of business premises
- postage and stationery
- business telephone and rental
- bank charges and interest on business loans and overdrafts
- travel and entertaining if the sole purpose is to retain or acquire business
- legal costs of defending business rights and renewing leases of less than 50 years duration
- bad debts and specific doubtful debts
- protective clothes necessary for the business
Disallowable expenditure
Expenses that are not allowable for tax purposes include:
- private expenditure
- clothes bought for ordinary everyday wear
- acquisition and depreciation of business assets
- your own wages or salary
- your business partner's wages or salary
- drawings
- payments to charities
- travel expenses between your home and place of business
- a general (non-specific) provision against doubtful debts
- legal costs of acquiring land and buildings
- fines for breaking the law
- your own life, accident or sickness assurance
- costs of alterations, additions or improvements to business premises
Capital assets
Expenditure on buying, creating or improving a business asset that you keep to earn the profits of your business is capital expenditure. You can't claim depreciation in your accounts for tax but you can claim capital allowances on these items.
Capital allowances for tax explained
Trading stock
This is anything which would be sold in the ordinary course of the trade, and any items which are still being manufactured or otherwise being made ready for sale.
Your opening stock for the start of the year and closing stock for the year end must be recorded on your accounts.
Secondary social security contributions
Part of the social security contributions which you pay if you're self-employed are allowable as a deduction. The allowable percentage, which represents the secondary contribution, or what might be thought of as the employer's portion is 52% for contributions up to the standard earnings limit.
If you pay the 2.5% contributions over the standard limit up to the upper earnings limit these are all employer's secondary contributions and can be claimed as a deduction.
Work out your secondary contributions
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