Amount we are paying tax from?

**Kat** · 10-01-2011, 06:47 PM

Hi All,

I did my tax return long time ago but my friend just called me and ask: what is the amount we are paying tax from? As far as I know we are paying from amount (profit ) but we are have amount which is free from tax?

**sarah707** · 10-01-2011, 07:37 PM

Do you mean the amount you are allowed to earn before you pay tax?

It's £6475 this year and £7475 next year (2011 - 2012).

**Kat** · 10-01-2011, 07:54 PM

Yes I was thinking about it ... but what I did is let say: earn 12 000 - 5000 (expend. ) it is 7000 - 6475 will be 525 ... and I would pay tax from 525 only?

**Chatterbox Childcare** · 10-01-2011, 08:30 PM

yes you would pay tax and NI class 4 at 8% but if the profit became over 535 an got to £1000 you would pay the tax again (half in Jan and half in July) for the following year

**rickysmiths** · 10-01-2011, 09:38 PM

Originally Posted by Kat

Yes I was thinking about it ... but what I did is let say: earn 12 000 - 5000 (expend. ) it is 7000 - 6475 will be 525 ... and I would pay tax from 525 only?

Don't forget to take 10% wear and tear off you gross income before you take youe expenses off.

So on the figures above 12,000 - 1,200 is 10,800 -5000 expenses so 5,800 left minus personal allowance of 6,475 so you have made a loss.

The advise is also in a normal year you expenses should be about one third of your gross income, in this example around 4000.

**Chatterbox Childcare** · 11-01-2011, 02:28 PM

Originally Posted by rickysmiths

Don't forget to take 10% wear and tear off you gross income before you take youe expenses off.

So on the figures above 12,000 - 1,200 is 10,800 -5000 expenses so 5,800 left minus personal allowance of 6,475 so you have made a loss.

The advise is also in a normal year you expenses should be about one third of your gross income, in this example around 4000.

Sorry but I don't agree with this advice. The more you earn the less percentage you will have in expenses. On £12000 I would expect at least 50% expenses

**butterfly** · 11-01-2011, 02:33 PM

Mine was nearly 50% in expenses this year. I thought as a childminder you could claim up to 2 thirds as expenses?

Also you wouldn't make a loss if you earnt under the personal allowance of £6475 because you don't actually take away the personal allowance. It just means that if your profit is under the personal allowance you don't pay any tax. If you made more than the personal allowance you only pay tax on the difference between the two.

**butterfly** · 11-01-2011, 02:34 PM

Originally Posted by sarah707

Do you mean the amount you are allowed to earn before you pay tax?

It's £6475 this year and £7475 next year (2011 - 2012).

Sarah, is the personal allowance £7475 for the tax year 2010-11 or 2011-12?

**sarah707** · 11-01-2011, 06:07 PM

Originally Posted by butterfly

Sarah, is the personal allowance £7475 for the tax year 2010-11 or 2011-12?

This year it's £6475

Next year it's £7475

**butterfly** · 11-01-2011, 06:19 PM

Originally Posted by sarah707

This year it's £6475

Next year it's £7475

Thank you!

**Chatterbox Childcare** · 12-01-2011, 06:35 PM

Originally Posted by butterfly

Mine was nearly 50% in expenses this year. I thought as a childminder you could claim up to 2 thirds as expenses?

Also you wouldn't make a loss if you earnt under the personal allowance of £6475 because you don't actually take away the personal allowance. It just means that if your profit is under the personal allowance you don't pay any tax. If you made more than the personal allowance you only pay tax on the difference between the two.

I think there is some confusion here. A loss is when you expenses are more than your income and you are in a negative figure. i.e. income 10,000 and expenses 15,000 and then you would have a 5000 loss to carry forward to the next year

You are right about the paying of tax though

**rickysmiths** · 12-01-2011, 06:55 PM

Originally Posted by DebbieS26

Sorry but I don't agree with this advice. The more you earn the less percentage you will have in expenses. On £12000 I would expect at least 50% expenses

I am only reiterating the advise of a very experienced self employment accountant. She said that if you go much over a third of income in expenses then it is likely that at some point you will have an investigation done.

Surely your expenses are less the less hours you work and the less children you are looking after?

**MaryMary** · 13-01-2011, 08:52 PM

Originally Posted by rickysmiths

I am only reiterating the advise of a very experienced self employment accountant. She said that if you go much over a third of income in expenses then it is likely that at some point you will have an investigation done.

Surely your expenses are less the less hours you work and the less children you are looking after?

With my maths head on, that would be a good estimate. If you find your expenses are only a 10th of your income, it could mean you have missed something, and you could go back abd check.

However, as your income increases, this percentage would decrease - it is only a rough figure. For example, overheads would be proprtionately lower - mileage for a journey with 1 mindee is the same as with 4, but income is significantly higher. This works with heating/lighting, etc (assuming FT hours) aswell. Other costs may be directly proportionate (art materials used, food eaten). (Have I lost anyone yet?!

)

I have spoken to CMs that seem to think it is ok to have expenses of 2/3 income - regardless of income

I worry for them that one day they will be investigated, as I think they are a bit naive

They seem to think if they pay tax they are doing something wrong!!

**tulip0803** · 13-01-2011, 09:35 PM

I had the tax office ask for my books as my income had reduced drastically from the year before so they do check. However I had a baby in November & didn't start work again in that tax year as I moved the Wales and had to re-register with CSSIW and as soon as they knew that they didn't go any further.

**rickysmiths** · 13-01-2011, 11:37 PM

Originally Posted by MaryMary

With my maths head on, that would be a good estimate. If you find your expenses are only a 10th of your income, it could mean you have missed something, and you could go back abd check.

However, as your income increases, this percentage would decrease - it is only a rough figure. For example, overheads would be proprtionately lower - mileage for a journey with 1 mindee is the same as with 4, but income is significantly higher. This works with heating/lighting, etc (assuming FT hours) aswell. Other costs may be directly proportionate (art materials used, food eaten). (Have I lost anyone yet?!

)

I have spoken to CMs that seem to think it is ok to have expenses of 2/3 income - regardless of income

I worry for them that one day they will be investigated, as I think they are a bit naive

They seem to think if they pay tax they are doing something wrong!!

Thank goodness someone else sees the logic

I must say I'm glad my expenses aren't 2/3 of my income because it would mean I would be working hard for little or no income. I would rather earn more and pay a little more tax as a result. £1900 to pay by the end of the month

**Chatterbox Childcare** · 14-01-2011, 02:48 PM

Originally Posted by rickysmiths

I am only reiterating the advise of a very experienced self employment accountant. She said that if you go much over a third of income in expenses then it is likely that at some point you will have an investigation done.

Surely your expenses are less the less hours you work and the less children you are looking after?

I am not disputing what your accountant has told you but my books show that my expenses per person go down the more children I have so quoting a % figure isn't realistic.

We all have standard expenses - gas/elec/ etc and if I had 3 children the cost per child would be high but if I had 10 the expense would stay the same but the income higher. Does that make sense

**Cammie Doodle** · 14-01-2011, 03:19 PM

Originally Posted by DebbieS26

I am not disputing what your accountant has told you but my books show that my expenses per person go down the more children I have so quoting a % figure isn't realistic.

We all have standard expenses - gas/elec/ etc and if I had 3 children the cost per child would be high but if I had 10 the expense would stay the same but the income higher. Does that make sense

Ah I see what you mean Debbie , that makes sense

**Minstrel** · 14-01-2011, 09:50 PM

Also a lot of it would depend on how you work.

ie 1 child for 40 hours a week would mean you could claim full time utilities expenses BUT 4 children for the same 10 hours a week would mean a much less utility claim.

I don't think there is any point in telling people how much % wise is ok to claim as expenses. Surely no-one makes up expenses (as proof is needed) and so if someone chooses to spend more on their business and claim then thats their business. And if you don't, then that's fine too!