Where to put Tax payments in S/A return??

Auntie-Dolly

Forget the idea of paying yourself a 'wage'. You pay tax on the profit left at the end of the year, irrespective of what you have done with the money in the meantime. Annual sales less expenses = profit. The tax paid on last years profit is not an expense.

CLAPTON

billymadbiker wrote: »

An example of this:
If I turnover £50k in a year, (year 3 say)
I have (allowable) expenses of £25k
I take personal drawings of £24k
Hand in my tax return for year 3 (in year 4)
I get taxed on £24k, so get a bill of (roughly) £4800

I pay the inland revenue £4800 but this payment is made in year 4.

When I do my tax return in year 4 it is as so:
Turnover £55k
expenses £25k
Personal drawings of £24k.
Now, added to my personal drawings in year 4 of £24k I have made payments of £4800 in tax,
So total personal drawings in year 4 = £28800.
I then get taxed on £28.8k which would be (using same 20% as above) £5760

So, In year 4 I pay an extra £960 in tax although my 'wages' are the same as the previous year.

If I draw the same wage next year I will get taxed on nearer £30k..

your tax affairs seem very simple

turnover = 55,000
expenses = 25,000
profit = 30,000

you pay tax on profit of 30,000
first 6475 is tax free and then 20% so your tax is 4,705
and of course NI

personal drawing have nothing to do with it.

no-oneknowsme

:rotfl:OP you dont half confuse things !

If you had an investigation a few years back then how come HMRC havent noticed that you are still filing your return incorrectly ?

The method you are using means that (surely) you are under paying tax ?

As a sole trader you cannot pay yourself a wage ! Everything you earn is your wage and as such you pay tax on it (minus your personal allowance and allowable expenses)

billymadbiker

I am filing it how they told me..
I know tax payments are not an 'expense'
I am also pretty sure I am not underpaying either!!

I got told that tax and N.I. payments should be put in box 3.33 on the tax return, so added to 'my own drawings from the business'.

This is what I have been doing for the last few years and seemed ok at the time.

Looking back on my previous returns though it just seems to be compounding and giving me a larger tax bill each year even though my 'drawings' stay static. I understand that if my drawings and expenses had stayed the same and turnover had gone up then I would pay more tax on 'profit' but over the last 2 returns this has not been the case.

Looking at the example I gave above (re-quoted by clapton) I hope I am showing what I am getting at?

The first reply to this thread states I should leave tax payments off the return completely, yet I have been putting them into box 3.33 along with the rest of my drawings. Is the first reply correct?

creditcarddebt

Billy

What is your actual turnover for the year? If is below 68,000 you would not be needing to complete the balance sheet on the self assessment return, so you would not need to even be showing your drawings.

Your personal tax payments and NI should not be entered into employee costs, therefore not needing to be shown as disallowable.

It is very worrying that you seem to be thinking that you are taxed on your personal drawings.

billymadbiker

creditcarddebt wrote: »

Billy

What is your actual turnover for the year? If is below 68,000 you would not be needing to complete the balance sheet on the self assessment return, so you would not need to even be showing your drawings.

Your personal tax payments and NI should not be entered into employee costs, therefore not needing to be shown as disallowable.

It is very worrying that you seem to be thinking that you are taxed on your personal drawings.

£55k for the 08-09 return.
I am not registered for vat.
The 'guide to filling in your tax return' states
"if your annual turnover is £15000 or more fill in boxes 3.27 to 3.73 on page SE2"

I understand that I am taxed on profit rather than personal drawings, but in my case, these are one and the same as I take out anthing that is left after paying all my expenses.
(basically,. pay all the work bills each month, pay all my own bills then put the rest in a savings account)

I think I just need to confirm I am not supposed to be adding my personal tax payments into box 3.33 although this is what I was told to do with them by hmrc and have been doing for the last few years.

If it works as so:
Turnover £55k
Claimable expenses £25k
= profit of £30k so pay tax/n.i on £30k.
Fair enough.
But, out of that £30k I need to take the money to pay the previous years tax bill (say £5k)

So, is it correct that, as tax/n.i is not an allowable expense, I should pay tax on the whole £30k, i.e. by putting £30k in box 3.33 is this what I am getting charged on?
Or, should I have put £25k in box 3.33 and left the other £5k out of my tax return completly?

creditcarddebt

You need to completely forget about your tax payments! They do not form any part of calculating your taxable profit.

Using your scenario in your previous post, then yes, you would pay tax on your profit of £30,000 (obviously allowing for personal allowance). If the figures were the same the following year then yet again you would pay the tax on your profit of £30,000, again allowing for your personal allowance.

jennifernil

How come you are not making "payments on account"? Or are you?

You really need to set aside the money for your tax each year.

billymadbiker

yes, I am making 'payments on account'
I make one in Jan and one in July.
I also pay N.I. (get a bill when I submit my tax return) plus I get bills every couple of months (for N.I.) which I pay.
I do set aside money (into my building soc. account) which normally covers my total bills. I roughly workout each month and put 30% of the profit aside.
Paying the bill is not the problem.
What I am trying to get a direct Yes or No on is weather the amounts that I pay the tax man should then be included in box 3.33 on that years tax return? - this is what I was told to do by hmrc and have been doing.

If No, where do I put these amounts when filling in the return? Or just leave the figures off completly as already suggested by some replys?

jennifernil

As said, tax and NI are not expenses, you seem very confused. You should only consider your turnover, that, minus costs, gives your profit.

If you are making POAs then you surely cannot have a big balancing payment to make?

As you are setting money aside for tax, then you are not drawing extra to pay it.

It is irrelevant anyway, tax paid has no place on your return.