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Salary payments
You will only receive these if you treated as an employee or director of either your own company or another, unconnected company. When you are doing your tax return, the salary that you have received will need to be included. However, if you have already paid tax on this through the pay-as-you-earn (PAYE) system, this will be deducted, so you won’t pay tax twice. You need to keep your payslips, and more importantly a P60 (which you will be given by your employer).
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Drawings
You don’t pay tax on drawings per se. Any drawings i.e. money that a sole trader or partner in a partnership takes out of their business is not treated as an expense of the business. The individual will pay tax on the business profits instead.
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Dividends
Dividends are the return you get on the shares you own in a company. Dividends need to be included on your tax return. From April 2016, the first £5,000 of dividend income that an individual receives is tax free. You must keep dividend vouchers as these will be required to complete your tax return.
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Interest
Some interest that you receive may be tax free such as interest earned on an ISA. This interest does not need to be included on your tax return. Other interest that you earn on current accounts, bonds and savings accounts is usually taxable. From April 2016, basic rate taxpayers can earn £1,000 of bank interest tax free; higher rate taxpayers £500. Any income in excess of this will be taxable. You need to keep documentation i.e bank statements showing all of the interest you have earned.
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Rental income
Rental income is taxable. Certain expenses can be deducted from rental income such as agency fees and maintenance costs. Capital costs such as enhancements to the building are not deductible. Interest payable on a buy to let mortgage are currently deductible against rental income, but this is expected to change from April 2017. There are special rules when letting out properties that are furnished, renting out holiday lets and letting a room in your home. It is recommended you speak to an accountant or tax professional so they can provide you with the latest rules You will need to keep your rental contracts, and keep track of the rent paid by tenants. You will also need to keep a record of all of the costs you have incurred.
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Pensions etc
Pension income is taxable income and will need to go on your tax return. There are tax advantages to making pension payments. The way in which the advantage works depends on whether you are paying into a workplace pension or personal pension. Get advice on this before making any pension decisions.
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