Tuesday 30 January 2007

Dunno about death, but taxes really hurt

Al and Dilly felt a bit punch-drunk by the end of last week. What with Al's wisdom tooth extraction - he was on jelly and ice-cream and chicken soup for a day or two there - the resulting bill and, cruellest of all, his tax demand.

If you are self-employed, you have to pay on anticipated earnings*. This balances out, as you don't pay twice - the tax on the anticipated earnings for one year are, as it were, absorbed by what you paid the year before. However, when you start up a business, obviously you don't know what the earnings are likely to be, so this is not done for the first couple of years. This time was the first occasion Al had had to pay on anticipated earnings. It just so happened that, nearly two years ago (that is, at the start of the tax year in question), Yagnub's largest - though still small - supermarket moved a mile or so out of the town centre and, as a result, Al's takings rocketed. Since then, he has done pretty well. However, it has meant that he had a vast tax bill, three-quarters of it to be paid now. The total works out at 43% of his year's earnings. Since he is a basic-rate taxpayer, this means he was, in effect, taxed at double rate, with no tax-free allowance.

It hurt.

In addition, Dilly is not earning and is not receiving maternity pay. Right now, the shop wages and bills are being paid out of the week's takings - that is, the eggs that are delivered and paid for on Tuesday are enough to cause a cash-flow problem.

They are remarkably cheerful, in the circumstances. At least, they say, they didn't have to borrow the money. Just strip their savings account. And, right now, that was what it was there for.

*Bear in mind, as you read what follows, that I don't quite understand it myself, so this is my interpretation of the rules.


Pat said...

They have my sincere sympathy and best wishes - as one who had a businesss for 21 years and had to cope with all the various governments threw at us. Bastards!

The Boy said...

Death and taxes, two universal griefs!

Paying on anticipatory earnings, what a nonsence. An absolute disincentive to be an entreprenuer. Another thing Gordon Brown has to answer for!

Z said...

When you are just entering your 5th year in business, cautiously optimistic (as long as T*sc0 don't open up nearby) and have been able to save, it's hard enough, but if he was struggling, it could be enough to put him under. He's okay, planning to take on a bit more help too, before long.

y.Wendy.y said...

Good planning there - having an amout saved to deal with it.

But heavens...43%! That's wicked. No wonder small businesses go under and the fat cats thrive.

Imperatrix said...

Yeah, here in the US independent business owners (like me) pay quarterly taxes. But here's the thing: you pay on June 15, September 15, January 15 (hmm, noticing these aren't spaced evenly, are you? ...But you still have to pay a full quarter each time), and April 15.

PLUS: April 15 is tax day for *everybody*, so, if you've done well in the previous year, on that last quarterly payment date, you have to pay in the additional tax, AS WELL AS your first payment for the next tax year.

April 15 is always a doozy of a day in this household.

Best of luck to Al and Dilly. But good cheer is always a good start.

Z said...

He will still only pay tax once overall at the basic rate in the long run. But for the last tax year it will still be, in effect, at more than the top rate of tax. They live quite frugally, by choice and, like all the family, don't like to borrow from the bank. Dilly does her own tax returns but Al uses an accountant which I think is Wise. I do too. Enough anxiety comes in life without tax returns.

We pay on 31st January and 31st July, on the earnings up to the previous April - that is, Al has just paid the first tranche for April 05/06 (plus the extra in one go). There's an automatic fine if you don't file your tax return in time, unless you don't owe anything.