Sole traders and Partners in a partnership pay income tax and they obliged to file their self assessment returns to HMRC before or on 31 January each year.
Accounting profit
Before you can work out your income tax liability you must sort out your business accounts which will give you your accounting profits. The accounting profit is the starting point of your income tax computation. You must turn your business profits into taxable profits.
Taxable profit
In calculating your taxable profit, you must take into consideration the following adjustments on your accounting profit.
If you have taken any items out of stock for your personal use, include these in your sales figure at the normal selling price. You must not account it on cost.
Add back to the accounting profit any business expenses that are not allowable for tax purposes such as depreciation of fixed assets and entertaining expenses.
You may claim capital allowances on your fixed assets and any loss relief may be deducted from your accounting profit.
Add back any balancing charge from the sale of business assets during the financial year.
Deduct bank interest and any income that is not part of your trading income and on which tax is paid separately.
Income Tax
Finally, you can now calculate your income tax bill using applicable income tax rates for the relevant tax year.
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