Sole trader

[..-7ckdx]

I have setup as a sole trader. I need some help regarding accoounts. If i wanted to take money out of the business account for personal stuff (morgage) how would i go about this. Should i just take a monthly salary?

[Eric Mc]

Take what you want - as long as the business can afford it. As a sole trader you are not taxed on what you draw out of the business for yourself. You pay tax based on the business profits.

An Example

Sales - £50,000
Business Costs - £30,000
Profits - £20,000
Drawings for personal use - £15,000

You will pay tax on the £20,000 profit.

[blippo1984]

I'm confused - what would stop you taking £35,000 out for personal use and then paying tax of nothing in the example above?

[blippo1984]

I'm confused - what would stop you taking £35,000 out for personal use and then paying tax of nothing in the example above?

[Eric Mc]

blippo1984 said:

I'm confused - what would stop you taking £35,000 out for personal use and then paying tax of nothing in the example above?

You won't pay tax on nothing. You pay tax on the profit BEFORE you deduct any personal drawings. In the sample above that profit is £20,000. The "Drawings" amount is NOT counted as part of the "Business Costs". So, it doesn't matter how much you pull out for yourself. You will pay tax on the £20,000.

[PurpleMoonlight]

blippo1984 said:

I'm confused - what would stop you taking £35,000 out for personal use and then paying tax of nothing in the example above?

Well for a start there won't be £35,000 in the bank account to take ....

[Eric Mc]

You would be amazed how many sole traders manage to pull out of their businesses even if the business isn't profitable enough

[blippo1984]

Apologies - misread the post and thought that the proft was stated after removing the 15k from the business.

Understand now.

[Eric Mc]

blippo1984 said:

Apologies - misread the post and thought that the proft was stated after removing the 15k from the business.

Understand now.

That is a major factor in sole trader accounts.

[Simpo Two]

Essentially all money that comes in is yours and accountable for/taxable, whatever bank it goes in.