Self assessment - help please!

Katie-Kat-Kins

Hi there,

I'm currently doing a self assessment online and have hit a couple of issues I haven't come accross before so I'm hoping someone on here can help.

1. Disallowable Expenses

Ok I understand what expenses are allowable and what aren't. But when I input my disallowable expenses (personal drawings) it adds them on, which seems illogical, so I can only think that I am doing something wrong.

I am entering turnover as total income from all sources for the year, as an example £20000.

Then total allowable expenses I am going through my books and entering the figures for basically all the expenditure apart from drawings. Say for example £10,000. This leaves £5000 net profit.

When I then enter personal drawings of say £2000 into the disallowable expenses this adds £2000 to the net profit giving £7000. That doesn't seem to make sense. I can only draw on money that has been made, my drawings came out of my profit and although I appreciate that I need to pay tax on these I seem to be paying tax on it twice like this

Should I have reduced my turnover accordingly??? Does it expect that you are drawing on capital rather than on profit??? How should I make this balance?? The business has made very little profit generally so I can't afford to pay more tax than is necessary.


2. Artistic Spreading

I've read the guidence on this and I think I get it but does anyone know whether what I am doing is correct? As an example the business made a £2000 loss last year and a £6000 profit this year. Therefore do I enter in the box £6000 + (2000) = £4000 / 2 = £2000 as the amount to adjust by???

If anyone can offer some guidence I would greatly appreciate it, the assessment seems so much more complicated than the last few years..... I guess that is just because different issues are cropping up.

Thanks

arborlinden

Expenses incurred in the course of business activities are recorded by you to produce business accounts. Some of those expenses, whilst reasonable in a business accounts sense, are not allowable by HMRC to be used to offset you tax liabliity usually because there is a personable element: your business phone bill for instance may reflect half business and half personal calls. Thus your full phone call bill would be entered as a business expense but half of the bill entered as a disallowable expense increasing your tax liability to reflect that you can't expect the tax payer to to give you tax relief on your private phone calls.
It is really just common sense.

Katie-Kat-Kins

Yes I understand what allowable and disallowable expenses are. I have entered the allowable expenses, it is the way it adds on the disallowable expenses to your profit that I don't understand. Because we have drawn money out doesn't mean that we have made more profit, we have made the same profit and just taken some of it out of our business account.

fengirl_2

Disallowable expenses will add to your profit because in effect, you are not allowed those expenses.
Drawings should not be shown in your accounts, but they do go in the balance sheet. Only business expenses, ie stuff you have spent on the business activity go in the accounts.