Question
What is the difference between entering incomes on the Employment screen and Other Income?
Answer
The Employment screen is used to enter income from earnings and any related dividends, bonuses, and benefits in kind. Employment Income should be entered as a 'Gross' amount to allow for the software to calculate the correct taxation for Income Tax and NI contributions.
- Total employment income (i.e. earnings) is used in part to calculate one's annual money purchase contribution limit. Aside from carry-forward contributions, money purchase contributions are limited to either total earnings or £60,000 per annum, whichever is lower.
- Employment income is subject to NI.
- Income taxes and NI on earnings for employed individuals and company owners is assumed to be paid throughout the year via pay as you earn (PAYE).
- Income taxes for self-employed individuals is assessed at the end of the planning year and paid as an expense in the subsequent year of the plan. Any taxes due on earnings from self-employment from the year prior to the start of the plan should be entered for that person on the Taxes screen.
- Dividends paid to company owners are one of the few items entered into the software as a net amount. Enter the dividends net of the basic 10% company tax (as this is how that are received) and the additional dividend tax due to being a higher rate tax payer will be calculated and shown as "Additional Dividend Tax" on the tax summary
The Other Income screen is used to capture all manner of income aside from earnings. You could use this screen to enter rental income, income from royalties or even employment earnings if they are not subject to regular UK income tax code. Earnings from savings and investments should generally be entered on their respective screens in the software.
- Perhaps most importantly, the Other Income screen can be used to tag these income sources as Taxable or Non-Taxable.
- Other income is not subject to NI.
- Taxes on other income are not paid via PAYE. Income taxes are assessed at end of year and charged as an expense in the following year of the plan.