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Hi, I’ve been self - employed for 5 years now and have had no problems or issues with filing my self assessment ever year although something always confuses me and I’ve never actually had a real answer other than what I can find online which isn’t much.
So, in the UK we’re entitled to £12500 of personal allowance tax free every year.
Now if your self-employed and through the CIS (Construction Industry Scheme) the chances are you get charged 20% of every payment you get. Meaning by the end of the year you should have over paid around £2500 in tax. Meaning in theory, you should be owed that I would think. So how come I’m forced to put expense through to get a tax return? And why do those expenses get taken off my total earnings?
John makes £40000 this year.
John made £770 every week and was taxed 20% on every payment through CIS and his UTR
John files his tax return and claims £6300 in expenses and gets a £2500 tax return.
Johns total earnings is now £33700
So John had to claim expenses to get what he’s already due if his personal allowance is 20% of £12500 and he’s been paying 20% every week. Now it looks as though John had made less money than he actually has when he applies for things like car finance, mortgages etc. Shouldn’t John be able to claims his personal allowance and then claim expenses if he chooses to? And another quick one. why if John claims no expenses does he end up owing the HMRC money?
I don’t know if I’m being silly but It’s always boggled my mind and I thought I would finally ask. Thanks to anyone that helps