NET PROFIT CALCULATION FOR SOLE TRADERS(AFTER 1 APRIL 2012)

scorpio_besal · Post by **scorpio_besal** » Wed Sep 05, 2012 9:50 pm

According to policy guidance printed on April and later on Aug 2012, (POINT NUMBER 93) this is the part applicable for sole trader.

http://www.ukba.homeoffice.gov.uk/sitec ... idance.pdf

If an applicant is self-employed and has chosen to retain the profits within the business, his/her earnings are limited to the share of the business’s let profits to which he/she is entitled. The appropriate proportion of the net profit of the business (that is, after tax and outgoings) can therefore be counted as the gross salary of the applicant.

------------------------------------
MY QUESTION IS, IF THIS IS HOW A SOLE TRADER'S NET PROFIT CALCULATED AT THE TIME OF T1 EXTENSION APPLICATION AS PER THE ABOVE MENTION DEFINITION

(A) income-(expences, class 2 NI+income tax + class 4 NI)

Note:- You only pay class 4 NI if your income after expenses is more than 7605GBP in an year.

------------------------------------

Many thanks.

rpsarangi · Post by **rpsarangi** » Wed Sep 05, 2012 11:28 pm

I asked the same question in different way and hope that you hav read that and my understanding from replies of members say :

Net income =gross- expenditure , for the period claimed ..

The tax will be filed in April and that's doesn't count towards giving the net ..

rpsarangi · Post by **rpsarangi** » Wed Sep 05, 2012 11:29 pm

http://www.immigrationboards.com/viewtopic.php?t=112321

Refer to the above

scorpio_besal · Post by **scorpio_besal** » Thu Sep 06, 2012 11:16 pm

Buddy, I checked with my accountant today, he mentioned that Net Profit for sole trader which UKBA would consider is as following:

Net Profit = Income - (Expenses + Tax)

Even the new ukba guide line printed on Aug 2012, in point 93 which refers to the same thing.

http://www.ukba.homeoffice.gov.uk/sitec ... idance.pdf

rpsarangi · Post by **rpsarangi** » Fri Sep 07, 2012 12:38 am

Hi buddy
So your account told that Net=Gross-(expenditure+ tax)
Can you please tell me what he meant by tax , tax for the claimed period or the tax which is already filed .

For example : the tax period for april 11-April 13 for HMRC is suppose tax 1.
The claimed period for visa extension is October 11- September 12 and tax calculated for the claimed period is tax 2.

Can you please clarify my doubt what tax ( tax 1 or tax 2) to be taken off from gross according to your accountant .

Thanks again .

scorpio_besal · Post by **scorpio_besal** » Fri Sep 07, 2012 5:58 am

Hope the below mentioned example would help you understand better,

Say your Gross Income is 16000 and expenses are around 1000K
If you are under the impression that your NET PROFIT = 16K-1K=15K before tax, then you are wrong.

For UKBA the calculation is completely different for sole traders.

Home office would look at the above income as

Net Profit=16K-1K-3k (tax)=12K

So they would claim point for 12 K as your net profit, and you would need to file your tax on that income after 06 April 2013 before the deadline.

rpsarangi · Post by **rpsarangi** » Fri Sep 07, 2012 10:34 am

Hi thanks for reply .
My doubt from the example is 3k is that the tax calculated by accountant for the period claimed October 11- September 12 . ???
If that's the case what about the tax which is filed for April 11-April 12, as it covers some period October11- April 12..??

Or the tax to be taken off is just calculated by the accountant from October 11- September 12 and taken off??

Hope you get what I am asking ?? Can you please clarify me with th doubt ..

Just one other thing I consulted my accountant and he said its only he gross- expenditure to give the net for the claimed period . As the tax for april 11-12 is filed and the next for april 12-13 gets filed in april 13, And tax gets filed in April 13 and it's the responsibility of the sole trader to pay it unlikely the employed persons..

rpsarangi · Post by **rpsarangi** » Sat Sep 08, 2012 10:44 pm

Any views by gurus or senior members or who have already applied under sole trader in tier 1 general on this matter~

nks · Post by **nks** » Sun Sep 09, 2012 2:16 pm

In my opinion, 'tax' in ('that is, after tax and outgoings)' in guidelines talk about tax on business (like VAT, corporation tax or similar) and not 'income tax' that you pay on profits (at least from point of view of sole-trader). Can someone who has successfuly got his/her Tier-1 with sole-trader income comment on this please.

shahmir · Post by **shahmir** » Sun Sep 09, 2012 2:54 pm

Thanks guys you're already discussing here exactly what i need to know. My accountant told me it should be
Earnings - Expenses

whereas I have read in the guidance notes that it is
Earnings - Expenses - Tax

If an applicant is self-employed and
has chosen to retain the profits within the
business, his/her earnings are limited to the
share of the business’s net profits to which
he/she is entitled. The appropriate proportion
of the net profit of the business (that is, after
tax and outgoings) can therefore be counted
as the gross salary of the applicant. We
will only consider profits made during the
appropriate 12-month earnings period for
which the applicant is claiming.

Yes this is Para 93 as discussed above.

and when I told my accountant about paragraph 93, he seemed not sure and since then I am more confused.

I personally feel that home office has very clearly mentioned in this paragraph that they will consider 'profit' and profit is always after tax and expenditure.

net profit of the business (that is, after tax and outgoings)

@nks Para 93 is about self employed who retain profits within business. They are not discussing corporate. I think a turnover of £70000 requires VAT registration, so obviously one who has turnover of £70000 will not be retaining profits within business (in most cases). They would prefer a Ltd company.

But we need a joint conclusion and look forward to the seniors' point of view.

However I asked a friend of mine who got extension last year and his income was as follows:

Requirement: 55k

Gross Salary: 11k
Income Tax: 3k
Net salary: 8k

Business Turnover: 55k
Business Expenses: 8k
Gross Earning: 47k
Business tax: 10.5k
Net Business Profit: 36.5k

Now 11k + 47k = 58k was his income and he got extension. NI Class 2 was included as expense. He moved to another city and could never receive any correspondence regarding NI class 4.

So in his case the equation is

Profit = Business Earnings - Expenses

No tax

and NI was also an expense

Also confusing, I'll pay NI Class 4 as well. Does anyone know at which stage do we pay Class 4? Would it be possible to include Class 4 NI in expenses?

nks · Post by **nks** » Sun Sep 09, 2012 5:55 pm

I still feel they are talking about tax on business. You may opt to register for VAT even with turnover less than 70K if it makes business profitable (outgoing VAT is more than incoming VAT).

This will also not be inline with the way UKBA has been considering sole trader net profit for always. Its like publishing new guideline for 'gross salary' from employed income as after tax.

What we need is comments from someone who made an application post 1st August with sole-trader income.

Thanks,
nks

Spatacus · Post by **Spatacus** » Mon Sep 10, 2012 8:04 pm

rpsarangi wrote:Hi buddy
So your account told that Net=Gross-(expenditure+ tax)
Can you please tell me what he meant by tax , tax for the claimed period or the tax which is already filed .

For example : the tax period for april 11-April 13 for HMRC is suppose tax 1.
The claimed period for visa extension is October 11- September 12 and tax calculated for the claimed period is tax 2.

Can you please clarify my doubt what tax ( tax 1 or tax 2) to be taken off from gross according to your accountant .

Thanks again .

I have been reading people's contribution on this topic. From my understanding of UKBA guidance, if your Tax period is ending on 11-April 2012, (Tax-1)
And second Tax period is ending 12-April 2013 (Tax-2)
If you are using this two periods for your Tier1extension,
Then you should calculate the period you traded for Tax-1 and Tax-2 must fall within 12 Callander month.
Tax-1 must have been paid
Tax-2 you should get Estimated Tax to be paid from HMRC (a letter or note )
So let's assume that in Tax-1 you trade only 6months (Tax on this must have been paid)
And in Tax-2 you traded only 6months (Estimated Tax to be paid written in form of a letter from HMRC)
Whatever Net Profit in Tax-1 + Net Profit in Tax-2 should be ok for you to use as evidence since they both falls within the 12 months period being claimed.
Hope this long explanation helps.

ursamyn · Post by **ursamyn** » Mon Sep 10, 2012 8:44 pm

From what I understand in the Para 93 is, applicants who are not having 100% share in the business (for ex. partnership firms), in that situation the net profit would be after tax orelse, it would be before tax.

92. We will assess an applicant’s earnings.
If an applicant is in salaried employment,
(including a Director of a company for
example) we will assess the applicant’s gross
salary before tax. This also includes selfemployed applicants who draw a salary from
their businesses. If the applicant earned the
money in a country with no tax system, we
will consider his/her total earnings for the
period.

93. If an applicant is self-employed and
has chosen to retain the profits within the
business, his/her earnings are limited to the
share of the business’s net profits to which
he/she is entitled. The appropriate proportion
of the net profit of the business (that is, after
tax and outgoings) can therefore be counted
as the gross salary of the applicant. We
will only consider profits made during the
appropriate 12-month earnings period for
which the applicant is claiming.

scorpio_besal · Post by **scorpio_besal** » Mon Sep 10, 2012 8:53 pm

has anyone made an application post 1st August with sole-trader income.

rpsarangi · Post by **rpsarangi** » Tue Sep 11, 2012 1:16 am

@URSAMYN
I dont understand your point..
So for self employed (sole trader) what category they fall into? And how do you think they will be accsed for the NET income?

@SPATACUS
I was not able to follow your explanation ,
If the applicant is going for extension in October , then TAX 1is necessary to is not necessary to file as the last date will be 31st januray 2013 for year 2011-12
And tax 2 last date will be 31st january 2014 for 2012-13.
Even if the applicant files for 2011-12 then that might not cover his income period as its from 4th april 2011- 4th april 2012 and the claimed period might be 1st septmebr 2011-31st October 2012.. so what TAX figure will come into play here ...??

ursamyn · Post by **ursamyn** » Tue Sep 11, 2012 7:41 pm

@rpsarangi

Buddy, i am employed as well as self-employed. When i applied for tier 1 (g) my accountant clearly counted the net profit as all the income (minus) expenses.

so if we earn 11000 (income in total)-1000(expenses)=10000(net profit)

and we pay tax on 10000(net profit) this is what a sole trader would do.

Now, if you are employed as well you will know that HO consider the income with tax on your payslips and not after tax so its gross income and not net income for employed person....so how will they change it to net income for sole traders or any other self employed persn...it wont be fare.

The income points consideration would be including your income tax and not after paying income tax.

I would also like inputs from seniors and specifically AccountantMathew.

Please throw some light on this and clear everyones confusion.

rpsarangi · Post by **rpsarangi** » Tue Sep 11, 2012 8:15 pm

@ursamyan
I do certainly agree on the point you mentioned. My accountant also gave me the same letter last time (Gross-Expenditure = net profit . )

My confusion is that they have mentioned point 92 and 93 to specify the self-employment category and how they are going to consider the income.
If you are self employed and draw salary thats fine you fall under point 92.. But majority of sole traders dont draw a salary so they fall under 93. and if they fall under 93 then they have mentioned that its gross-(expenditure+Tax)

thats my confusion.

any seniors / accountants or anybody who have recently applied for visa can put any light on it.

thanks for the reply.

scorpio_besal · Post by **scorpio_besal** » Tue Sep 11, 2012 9:39 pm

If net profit is before tax then why does UKBA say on point number 93, that they consider NET after tax.

So confusing

shahmir · Post by **shahmir** » Tue Sep 11, 2012 10:15 pm

Lets suppose a photographer's annual turnover is 20k and before the end of that tax year, he buys a photocopier and new photo printing machines for 15k, and during this year his other business expenses were 2k, so in total he has spend 17k.
20k - 17k = 3k, So he will pay tax on 3k.

Does this mean he is retaining his profits within the business? If yes, is this what UKBA is pointing in Paragraph 93?

Its a mystery. Seems no tax experts here??

scorpio_besal · Post by **scorpio_besal** » Tue Sep 11, 2012 11:00 pm

Well, its not about being tax expert, its more about tier 1 immigration expert, who knows about UKBA rules.

In my honest opinion, I feel that the net income after tax is what UKBA takes into account at the time of calculation, thats what UKBA guide lines say.

However UKBA's logic is very un fair for those who are sole traders, because the person who is employed can claim points for his gross earning but the
sole trader can only claim point on NET INCOME (income-expense) after tax.

which means they have to earn more than employed people to get points.

shahmir · Post by **shahmir** » Tue Sep 11, 2012 11:15 pm

I will repeat my friends Tier1 extension case who had to earn 55k to get extension. Now look what he did.

Employment
Gross Salary: 11k
Income Tax: 3k
Net salary: 8k

Self employed
Business Turnover: 55k
Business Expenses: 8k
Gross Earning: 47k
Business tax: 10.5k (which he paid later actually)
Net Business Profit: 36.5k

Total Earning 11k + 47k = 58k

Extension granted

So this confuses. We should find out what is "retaining profit within business", because para 93 is only about retaining.

scorpio_besal · Post by **scorpio_besal** » Tue Sep 11, 2012 11:18 pm

Would you know, if this person has applied before or after 01 Aug 2012.?

shahmir · Post by **shahmir** » Tue Sep 11, 2012 11:20 pm

He applied in 2010. His next extension is due in 2013.

scorpio_besal · Post by **scorpio_besal** » Tue Sep 11, 2012 11:23 pm

Buddy, the UKBA guide lines have changed several times since 2010.

The new guide line which has been issued in Aug 2012, has different set of requirements, and the para 93 is what we need to focus on, which says net profit after tax is what they are checking for self employed in sole traders capacity.

If you get to know any one who has applied after 01 of Aug 2012 as a sole trader, let us know.

I will keep you people updated, if I get to know more.

rpsarangi · Post by **rpsarangi** » Wed Sep 12, 2012 12:27 am

Yes Scorpio_besal is right, the policy guidance has changed since 2010 and we are confused after reading the point 92 and 93.. so we are looking for somebody who have applied recently after 10th august 2012. or any expert who could comment in that field and on that those two points 92 and 93 of the guidance policy.

Immigrationboards.com: Immigration, work visa and work permit discussion board

NET PROFIT CALCULATION FOR SOLE TRADERS(AFTER 1 APRIL 2012)

NET PROFIT CALCULATION FOR SOLE TRADERS(AFTER 1 APRIL 2012)