A question we commonly encounter when advising our Network Marketing clients on their tax affairs is how much money they should put aside to pay for their taxes.
Initially, when you first set up your business you may not make a profit and therefore you do not need to pay tax. Once you start making a profit, it’s tempting to pay yourself a bit more or take out a lump sum. It’s worth bearing in mind that by the time you receive a tax bill, this will cover a period of up to 18 months so your bill may be more than you expect it to be.
So how do you work out how much to save?
The basic tax rate is 20% so it would be easy to think that 20% of your income should be enough, but many forget about National Insurance contributions. If your profit exceeds £50,000, there is a higher rate tax of 40% on the part that exceeds £50,000.
Here are some examples based on different levels of income and assuming that you have no other sources of income:
|Profit||Tax||National Insurance||Recommended saving||Saving as a % of Profit|
Another thing to consider is your personal tax allowance. Set at £12,500 for 2019/2020, your personal tax allowance means that you do not pay income tax if your annual earnings are less than £12,500, and you would only be taxable on any earnings above that amount.
Our advice to avoid getting caught out is to put the money in a separate account on a monthly basis.
Our team are experts in providing tax and bookkeeping advice to the Network Marketing sector so if you’d like some assistance please contact us on 01444 458252 or firstname.lastname@example.org.