When you are self employed the amount of tax you pay is based on your business profits. It means that you only pay tax on what you truly earn because you will inevitably have costs you need to pay for to be set up as a self employed individual.
How Do I Work Out My Business Profit?
Your profit is worked out by adding up all your income and deducting from it all your business expenses.
What Counts as Income?
Income means everything you have earned, whether that was in cash, bank transfer or paid to you by credit card.
What Counts as Business Expenses?
Generally speaking everything you pay for as part of your business should count as a business expense, although there are some expenses that have special rules attached to them which we talk about in Day 6 of the Go Self Employed Course.
An Example of Working Out Business Profits
Bob is a self employed web designer, his business profits is worked out like this:
|Less: Business Expenses
|Total business expenses
|– £ 1,710