Sole trader, please help

thedokta

Hi, I've recently set up my own image library, selling the rights for contemporary photography to newspapers, magazines, etc. I remember somewhere being told that a bank charges for business transactions. I'm wondering whether as a sole trader I can use my current account (in my name) to take business payments and therefore miss these charges. Or can I set up a business account (in the business name) and then when it comes to making payments to photographers, pay a lump sum to my own account and then pay the photographers from there, otherwise I will be making a number of payments each month.
I hope someone might be able to help?
Also, as a sole trader, should I pay myself a salary? Initially I may not be able to but should I try to give myself a set salary for the year?
Thanks
Kieran

Pennywise

You don't "need" a business account - if your customers are writing cheques in your personal name (i.e. you don't use a business name), you can pay them into a personal account, and pay expenses out of a personal account. However, you shouldn't mix business with your personal monies, so you are best getting a personal "no 2" account or a personal account at a different bank.

Re salary, you pay tax on the "profits" made by the business, regardless of whether you take money out or not. As a sole trader, there is nothing called "salary" - you put money in as cash introduced and you take money out as drawings. You are fee to personally pay in and withdraw money and it has no tax effect whatsoever.

blue_monkey_2

Hi Keiran,

Most business accounts charge you eventually - with Barclays I got 12 months free banking, Abbey are free but you fill out a form and if you do not meet their criteria they reject you - Barclays met me one to one, visted me at home (I work from home) and they are always at the end of the phone and I find their internet banking really good.

We get around the charges in several ways. Any cheques are made out to me, I bank them and keep records of what I have been paid and by who (I mainly sell on eBay so I get a few) and this gets offset against personal expenses (car use, rent allowance, etc..) that I put through the books.

Bank transfers are free as are payments via the internet to other accounts, they charge you for writing and banking cheques, getting cash from behind the counter, etc... but you can avoid this. I found using my personal account for business a complete nightmare as it is easy to use the money for shopping or personal stuff and then when it came to paying the bills they money would not be there. If you can handle this respect then there is no reason why not - however, if you can give your supplier a business bank account name it makes you look legitimate and professional. If your suppliers pay to your bank then they can use your account, if writing a cheque ask them to make it to you but specify that you prefer a bank transfer - it is free for you and for the person paying you.

As a sole trader you do not have to pay yourself a salary but you can use the money coming in as long as you declare it. Set an account up in your records as a kind of 'Bank Account' (I se Sage for my accounts and find this really easy to use, I set it up via Barclays and it is cheaper than buying the programme and then for each update as I get these for free via Barclays) and then you can use this when putting through expenses and also taking the money out. If you, say, use £100 of your own money for expenses the it'll go through the books as money being owed to you and hen you can take out the money owed to you at the end of the month, week, or whatever you perfer. But keep records of everything else it gets very messy at times and this is why I chose to split the two personal and business accounts.

At the end of the year (April) you will have to self assess - you should have told the Inland Revenue after 3 months of trading that you are self employed - and you will simply delare what you have paid out (Suppliers, stock, etc) and what has come in, anything that has come in is classed as your earnings. If you bought £5000 in stock and have had £6000 come into your account then your taxable amount for the year will be £1000. You can earn around (rough figures) £5000 each year tax free, and between £5000 and £7500 it is 10% tax, after £7,500 it is 22% but the self assement form online is excellent and really simple and it tells you how much tax is due.

I hope have not confused you too much, remember though, any money you choose to take out is not an expense and should not be entered into your books as such.

If you want to pay yourself a proper wage then you will need to contact the Inland Revenue and then you'll pay employers NI which then puts your expenses up. It is better not to do this (in my personal opinion). Remember though, pay your Class 2 NIC's even if you earn £1 a weel so you'll be entitled to sickness benefit and your pension entitlement in later life. You can do this by calling the Inland Revenue and setting up a Direct Debit and itis costs around £2.60 a week.

Good luck in your new venture. I hope I have not confused you too much!!

thedokta

I think I get it, so I should set up a business account in the company name, say 123 company. If someone wishes to pay me by cheque, get them to pay it to my name ....Kieran Orwin. If it's a bank transfer then get it paid int o the business account. This has no charge right? And then if I'm paying out to photographers I can pay by bank transfer without incurring a charge?

buglawton

A&L business banking is free but they charge a cheeky £50 overdraft facility fee for an agreed overdraft where you are paying interest as well. Also, not as flexible as a personal acct - can't use A&L branches, only post offices, and phone hours are restricted compared with a personal acct. But foreign transactions are a bit cheaper. Overall it is good to keep all business cash flow separate from personal.

thedokta

When I'm paying out monies to the photographers each month, rather than paying a number of cheques to various people incurring costs, is it legal to pay one cheque to myself at anoher personal account and then pay the photographers from there at no cost.

thedokta

I figured because this forum seems to have a lagre number of people viewing someone might be able to help.

I've recently become a sole trader of an internet based image library. The images will be sold and money received, from this money I have to pay the photographers their percentage due. I want to have a bank account in the name of the company but it is not technically a business because I am a sole trader. I am wondering whether I am allowed to make one large payment to my personal bank account at the end of the month and then from that divide up the money to be paid to the photographers rather than incur the costs of paying individual cheques from the business account or whether I can set up another 'personal account' which can accept cheques made out to the company name for people paying me?

I'd like people to make cheques out to the company name (makes me look more legit) but don't want the chrges of business accounts.
Any help would be appreciated.

Apologies if I shouldn't have posted this here!

Kieran

tru

You are a business if you're a sole trader

You don't legally have to have a business account to run a business, but if you want to use a business name, then you'll need one. I think Abbey are free.

mikewebs

It may be legal but certainly not good practice!

You should be able to tie every payment to an invoice or receipt. Otherwise you may find that Inland Revenue or HMRC come down on you for trying to avoid tax. You have to understand it from their point of view - they see a company cheque being made out to you - are your withdrawing capital from the business, taking drawings or paying yourself a wage? Or are you syphoning money off?

It is very easy to keep your records simple so that you can see who every payment has been made to and who has paid you. I would seek the advice of an accountant or your bankers for any further information. A simple column Cash book for receipts (money in) and another for payments (money out) should be sufficient. Use each column to reflect what has been paid eg a column for telephone, a column for electricity and a column each for receipts from debtors and payments to creditors. Honestly it is as simple as that and bank charges are just an essential expense that has to be paid. Let's be honest, even on a small business's books, charges would be minuscule in comparison to other expenses.

Do the right thing keep your books accurately and reliably - to show the true value of your business.

Saucepot

I know someone called Dave Plumber whose a sole trader. Except he's an electrician. Hows that for mad?

nelly_2

Saucepot wrote:

I know someone called Dave Plumber whose a sole trader. Except he's an electrician. Hows that for mad?

It'd been really mad if his job was a Daver