Recording Expenses:

• The main types of expenses commonly found in business or financial records, grouped into broad categories:
•  
• Cost of Goods Sold: represents the direct costs associated with any of the following:
• the production of products
• The purchase of stock or
• the acquisition parts or ingredients
• the acquisition of services to be sold on or arbritaged during a specific period
• Operating Expenses: are costs that a business incurs in its day-to-day operations, such as
• Rent,
• Utilities,
• Salaries,
• License and insurance,
• Training & software
• Accounting and Professional fees,
• Travel
• Marketing expenses.

Tax Deductible.

Questions asked when devising accounts for the business.

Which business expenses are allowable and deductible?

Which business expenses are not allowed and not tax deductible?

Tax Deductible Vs Non-deductible

Taxable Profits means the total earnings/sales of the business, minus any expenses giving “trading” profit.

Taxable Profit = Income – Tax Allowable Expenditure.

Tax and National Insurance are due on the profit you make from your business.

Taxable Profits

On top of your tax bill, you’ll also have to pay your national insurance contributions.

There are two types of national insurance for self-employed people and in the main you must pay both, if you reach those thresholds.

• Class 4 NIC which is 6% and based on profits between £12,570 and £50,270, and then 2% of profits thereafter.

This means that if you have made profits of £12,569 or less you do not have to pay tax or Class 4 National Insurance.

If your profits are less than £6,725 a year, You do not have to pay anything, but you can choose to pay voluntary Class 2 contributions.

NI Calculations

MAKING PROVISION for your Tax Bill & NI Contribution

As a small business owner, it’s a good practice to put aside some of the money you earn into a savings account, in provision for paying your HMRC liabilities (tax bill and national insurance contribution).

It is difficult to estimate this as tax and national insurance are paid on profits made however,

• If you have invoiced someone for work and there are no costs to deduct, you can assume the whole amount will be a profit. Keep approx. 20-25% of this money to go towards your tax and national insurance bill. This brings in the personal allowance which comes tax free to everyone.
• If you have invoiced someone for work and you have expenditure of around 10% to deduct from this for the costs you have incurred, you could then set aside about 15-20%. This smaller percentage accounts for the expenditure you have paid and the tax-free personal allowance part.

MAKING PROVISION for your Pension Contribution

If you were an employee of a company, you would automatically pay into a workplace

pension scheme that your employer has set up for you.

However, as a self-employed person this is something you would have to consider doing

yourself.

You would have to consider whether you can afford to retire with only the state pension

available to you and if this would be adequate for your means as you get older. the full amount you’ll receive for the 2025/26 tax year will be£230.25 a week

In 2025, the state pension age is 66 years old for both men and women. Of course, the state pension age is rising making it more difficult for many people.