A Sole Trader's First Tax Return: A Case Study
Let's follow David, a newly self-employed graphic designer, as he calculates his profit for his first tax return.David started his business this year and has kept a record of all his sales invoices and business receipts.
Step 1: Calculate Total Income (Turnover)
David adds up all the invoices he issued for the work he completed in the tax year.
- Total Income: £35,000
Step 2: Add Up Allowable Expenses
David goes through his bank statements and receipts to find all his tax-deductible business costs.
- Software Subscriptions (Adobe): £600
- Professional Indemnity Insurance: £250
- Use of Home as Office (simplified rate): £312 (at £26/month)
- Marketing (website costs): £400
- Accountancy Fees (Taxd subscription): £150
- Total Allowable Expenses: £1,712
Step 3: Calculate Taxable Profit
The profit David will pay tax on is his income minus his expenses.
- £35,000 (Income) - £1,712 (Expenses) = £33,288
This is the figure David will declare on his Self Assessment tax return. His final bill will be calculated based on this profit, after his tax-free Personal Allowance is deducted.