The main tax rates and limits for 2015/16 and 2016/17

Rate or limit	2015/16	2016/17	Notes
Class 2 NI	£2.80	£2.80	Self-employed NI per week
Class 2 NI small earnings limit	£5,965	£5,965	Exempt from Class 2 NI if annual earnings below limit
Income Tax personal allowance	£10,600	£11,000	Tax free allowance - age under 65
Basic rate band	£31,785	£32,000	Income charged at basic rate
Higher rate band start	£31,786	£32,001	Starting point for higher rate
Higher rate band top	£150,000	£150,000	Top of higher rate band
Basic rate	20%	20%	Tax rate on income in basic rate band
Higher rate	40%	40%	Tax rate on income in higher rate band
Additional rate	45%	45%	Tax rate on income exceeding higher rate band
Class 4 NI lower profit limit	£8,060	£8,060	Self employed charged on profits above this limit
Class 4 NI upper profit limit	£42,385	£43,000	Charged at a lower level on profits above this limit
Class 4 NI rate (1)	9%	9%	NI rate between lower & upper limits
Class 4 NI rate (2)	2%	2%	NI rate on profits above upper limit
VAT registration limit	£82,000	£83,000	Register if turnover exceeds limit in last 12 months
VAT standard rate	20%	20%
VAT fraction	1/6	1/6	VAT element of VAT inclusive amount

In the UK (but probably nowhere else in the civilized world) tax years run from 6 April and end the following 5 April. So the current tax year 2016/17 started on 6 April 2016 and will end on 5 April 2017.

Allowable expenses

Business expenses that you’re allowed to take away from your income before your income tax is worked out.

Customs & Excise

The arm of HMRC which deals with VAT as well as custom duties

HM Revenue & Customs

Aka the taxman. Formed in 2005 from the amalgamation of HM Customs & Excise with the Inland Revenue.

Income tax

The main tax on income. The more you earn the more you pay.

Inland Revenue

The arm of HMRC which deals with Income Tax, NIC and Tax Returns.

IR35

An Inland Revenue Press Release about stopping people who are really employed from setting up limited companies so as to get the tax advantages of self- employment. The computer industry is obsessed with IR35. But it is of no relevance whatsoever to independent escorts.

National Insurance (NIC)

Really a form of income tax though the government likes to pretend it’s an insurance you pay in return for getting various state benefits and use of the NHS

Overlap relief

If you do your business accounts each year to a date other than 31 March (strictly 5 April) then some of your income will get taxed twice in the first 2 years of your business. But when the business ends the overlap period will be taken off your final year’s profits.

Tax avoidance

This is legal – arranging your affairs so you pay less tax

Tax evasion

And this is not legal – usually involves lying or cheating

Turnover

The total money you receive from your clients. Basically income before subtracting any of your expenses.

VAT

Value Added Tax – a nasty European inspired tax

VAT Input tax

The VAT you pay on the goods and services you buy into your business. If you buy £120.00 of massage oils then £20.00 of it is VAT input tax which you could get back if you were VAT registered and the oils were all for business use.

VAT Output tax

If you’re VAT registered this is the VAT you charge on services you supply out to your clients. The client pays you the tax which you effectively collect on behalf of the government. NB Nothing to do with incall and outcall!

 

Get a quick estimate of your tax and be sure you’re setting aside enough each month to cover your future tax bills. There are easy to use calculators for the current tax year and earlier years as well.

Tax calculators

Get your bookkeeping organised and protect yourself against a tax investigation with the TaxRelief Diary, our no-nonsense, stress-free solution to your bookkeeping – now in its 9th edition.

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