Tax is a subject that causes fear in many of us – but don’t worry, it isn’t too hard. You might want to consider bringing an accountant onboard if numbers just aren’t your thing. Not only can they handle all of the paperwork for you, but they can also save your business a lot of money. Accountants are also useful to have to hand if you have any tax questions throughout the year, where you really need professional advice.

We are going to list the basic details of tax below, and then have a list of frequently asked questions. If you don’t find the answer you are looking for, please please pop us a message, and we will add it for everyone else in the future.

WE ARE NOT ACCOUNTANTS – the information on this page has come from our own experience, discussions with our accountants and research online. If you have a serious tax query, we recommend speaking to a qualified accountant.

YOUR ‘TAX YEAR’

Within your business, you have what is called a ‘Tax Year’. This is a 12 month period for which you calculate your accounts, profit, loss and tax. Most businesses start their tax year on 6th April, and end it on 5th April. As most resources you read will refer to this ‘tax year’, it would probably be easier for you to use the same dates. It doesn’t matter if you ‘start your business’ in September, just run that years account until 5th April, then start again!

YOUR PROFIT (or loss!)

Hopefully within your business you will make some sales. You will also make some purchases. In its simplest form, your profit is your Sales minus your Purchases. If your purchases exceed your sales in your tax year, this means you have made a loss. This isn’t unusual in your first couple of years of business, you still need to file a tax return – and will probably receive a tax rebate.
The very basics of taxation, is that you pay tax on a proportion of the profit you earn within your tax year. So lets see how it works….

LET’S SEE AN EXAMPLE

Have a look at an example, before we go into the details of how it works…

This example uses a personal allowance of £11,000 and a tax rate of 20%.
In reality, these figures can change year from year, but this will help you see how it all works.

£0

Your Sales

Your Sales total is pretty straight forward. It is the sum of all the sales you have made in that year.

£0

Your Expenditure

Your Expenditure is the total of everything you spent* on your business.

£0

Your Profit

Your Profit is your Sales, minus your Expenditure.

£0

Personal Allowance

This is the government set level of income you can earn tax-free.

£0

Taxable Income

Your Profit, minus your Personal Allowance.

£0

Tax You Pay

This is the amount you will owe in Tax
based on 20% tax, and not including national insurance etc

FAQ’s

It’s questions time! If we have missed something – let us know and we will add it!

What Else Will I Have To Pay?

As well as your Income Tax, you will also need to pay some other bits as part of your overall tax bill.
National Insurance Class 2 (worked out as a percentage of your profit)
National Insurance Class 4 (approx £145/year on todays figures Jan 2017)
Student Loan – if you have one, and earn over the threshold, payments will automatically be added.
Payment on Account – you may also have to pay this… (see the next question!)

What is a Payment on Account?

If your tax bill comes to over £1000 – you will probably also be asked to make a ‘Payment on Account’. This basically means you pre-pay NEXT years tax bill.
For example, if your tax bill is £2000, you will be asked to pay….
31st Jan – £3000 [£2000 from your tax bill, plus 50% to pre-pay for next year]
31st Jul – £1000 [the remaining 50% to pre-pay for next year]
If you earn the same amount in that year, you have already paid your tax bill by the time January comes around again. You just then need to ‘Pay on Account’ for the following year again [£1000 in this example].
HMRC estimate your next tax bill – based on your current one. If they get it wrong, you will either need to pay extra, or receive a rebate

What Records do I Need to Keep?

You need to keep a record of any sale you make, and any purchase / expense you have made.
Although for your tax return you only need the totals – if you are ever investigated or audited, you need to be able to prove how you reached those figures.
You need to keep your records for a minimum of 5 years after your tax return deadline (31st Jan) – so 6 years to play safe!
Your records don’t all have to be in paper form – digital receipts are accepted, just make sure you have them backed up!

When do I Have to Pay?

Your tax return must be filed, and any payments made, by midnight on 31st January.
You can submit your tax return at any time before then, just make sure you remember to pay by the deadline, or they will apply penalties!

How / Where Do I Submit My Tax Return?

If you want to do it yourself, you need to register with HMRC online. You can also allow your accountant to submit your return for you.
Please note – signing up with HMRC can be a LONG process (often many weeks!). DON’T leave it until January, as you may end up missing the deadline to submit your tax return!
To fill out your tax return online, you will need your total sales and your total expenditure figures.

I am still employed in my other job - what does this mean?

Becoming self employed doesn’t affect your employment, assuming you are paid via PAYE (most people are!).
You don’t need to inform your employer if you don’t want to either.
The main difference is that when you file your tax return, you will need to fill out the ’employment’ section, using details from your P60 or P45 from your employers.
If you make a loss within your business, you will get a rebate against the tax you paid in your employment.

We are a partnership - what difference does that make?

If your business is registered as a ‘Partnership (ordinary)’ then you have some extra work to do, but not much!
First – you need to decide how you are going to split the profit. (ie 50%/50%)
Assuming there are 2 of you, splitting the profit 50/50 – you will need to do the following…
-File a Partnership Tax Return (SA800) [informing them of the total profit, and how you are splitting it]
-BOTH File a Self Employment Tax Return (SA100) [using your share of the profit as the ‘income’]

Capital Expense / Annual Investment - do I need to spread it?

When you purchase items for your business that will stay with you for a long time (such as a Camera, Lens, Computer, Van etc) then this classes as a ‘Capital Expenditure’ or ‘Investment’. There is something called an ‘Annual Investment Allowance’ which, if you spend more than that in a single year, you have to spread those expenses over multiple years. However, the current threshold is £200,000 Jan 2017– so this isn’t likely to affect photographers. Assuming your Capital Expenditure is less than that – just include it all in your expenses for that year.

Is my Tax Bill an Expense?

Unfortunately your Tax Bill doesn’t class as an expense, and shouldn’t appear in your accounts!

Is it what I have Invoiced, or what I have been paid? (accrual vs cash accounting)

There are two main types of accounting – Accrual and Cash.
Accrual is the most common, and often easiest method – especially for photography businesses. In short, you account for any INVOICES you have raised within that tax year, whether they have been paid yet or not.
Cash accounting means that you account for any PAYMENTS made to you within that tax year – even if the invoice was in the previous year. This type of accounting is more aimed at the manufacturing industry, where there may be long gaps between invoicing and payments.