There are many types of tax but this article will be exploring personal tax.
The amount of tax to pay each year will be determined by profits minus personal allowance.
Also referred to as a tax-free allowance.
For the tax year 2020 to 2021, the standard allowance is £12,500 for the first tax bracket.
A sole trader can make up to £12,500 profit before any tax is due.
Any amount over this figure will be taxable
The basic rate is 20%. That’s £20 tax due for every £100 profit.
Anything over £50,000 but less than £150,000 is taxed at a higher rate of 40%.
The personal allowance is reviewed yearly.
A person might be entitled to trading, marriage, disability or another allowance, increasing their tax-free allowance.
Some income is tax-free such as savings, dividends, some benefits, lottery wins and more.
If someone earns more than £100,000 the tax free allowance will be reduced.
Tax Accounting is a complex and specialist subject.
If things are unclear, bookkeepers and accountants are available to help.
Get it right, don’t pay too much tax.