Paying taxes is never fun, and we all want to make sure we’re not paying more than we need to. As a business owner, it’s essential to understand how taxes can affect your finances, especially when it comes to drawing funds out of your company. One important factor to keep in mind is the £100k limit.
If your total income exceeds this limit, your personal allowance starts to decrease, and you may end up paying more in taxes.
What is the personal allowance?
Your personal allowance is the amount of income you can earn before you have to pay tax, and currently, it’s set at £12,570. For every £2 your adjusted net income is above £100k, your personal allowance goes down by £1. This means that if your income is £125,140 or above, you won’t get any personal allowance at all.
Calculating your adjusted net income can be tricky, so it’s always a good idea to consult a professional accountant to help you determine how much tax you need to pay and give you advice on how to manage your finances efficiently.
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Filling in a Self assessment
If your income exceeds the £100,000 threshold, you’ll also need to fill out a Self Assessment tax return. This is a form that you need to complete every year to report your income and any tax you owe.
Those that aren’t already registered for self assessment need to register by 5 October following the tax year they had earnt the income.
For example, if in the tax year running from 6th April 2022 – 5th April 2023 you breached the £100K limit, you would need to register for self assessment by 5th October 2023, and submit your first tax return before the 31st January 2024.
By understanding how it works and seeking advice from a professional, you can make sure you’re not paying more tax than necessary. That way, you can free up funds to invest in growing your business or achieving your personal financial goals.
Are you in need of an accountant to assist you with managing your finances? Simply visit our Get Started page and fill out a quick questionnaire to schedule a free, no-obligation call with us.
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