tax credits self employed help... urgent!!!!!

sohurtandlost

hi all,

for self employed people it asks for the net profit fr the business. that art is fine, but as i am nt an employee i take drawings, where is this part declared? it doesnt seem to come under other income?

tia

Icequeen99

If you are a sole trader, then you cannot deduct drawings as an expense for tax or tax credits. That would be double counting.

Have you deducted the drawings when coming up with your net profit figure? If you have you need to add them back in.

IQ

cutestkids

Are you a sole trader of are you a Director of a Limited Company in your self employment ?

BigAunty

http://www.hmrc.gov.uk/taxcredits/start/claiming/income-hours/self-employed-income.htm

It's not about your drawings (what you choose to take out of the business), it's about your profit - the amount of income that remains after legitimate deductions have been made.

Working out your income

This is a three-step process:

• Step 1: look at how much profit you made
• Step 2: decide what to take off
• Step 3: then what did you have left?

sohurtandlost

Sole trader. Not limited or anything, just me!

So for example if my business had a net profit of £10,000 and i took £5000 as drawings (effectively my income) do i declare £10,000 as my profit (what my tax return says) or £15,000?

Where do i put te £5000 i had?!

Icequeen99

sohurtandlost wrote: »

Sole trader. Not limited or anything, just me!

So for example if my business had a net profit of £10,000 and i took £5000 as drawings (effectively my income) do i declare £10,000 as my profit (what my tax return says) or £15,000?

Where do i put te £5000 i had?!

You declare 10,000 if that is what is on your tax return. You don't do anything with the £5000 as it is already included in the 10,000.

You didn't deduct the £5000 that you took out as drawings on your tax return did you?

IQ

sohurtandlost

No i didnt! My accountant does all of that for me luckily! Just wanted to double check that drawings are accounted for somewhere along the lines as im too scared of getting it drastically wrong!

So i put what my tax return says then? Net profit?

Sorry and thanks

cutestkids

As a sole trader you DO NOT take drawings your "wages" if you want to call it that is every penny that your business makes after expenses, this is your profit and this is what you should be taxed on.

Icequeen99

sohurtandlost wrote: »

No i didnt! My accountant does all of that for me luckily! Just wanted to double check that drawings are accounted for somewhere along the lines as im too scared of getting it drastically wrong!

So i put what my tax return says then? Net profit?

Sorry and thanks

Yes, taxable profit from your tax return. See http://www.hmrc.gov.uk/forms/tc600-notes.pdf Page 15 it tells you what figure from your tax return to use for tax credits.

The drawings are accounted for as your profit. You made £10,000 and you decided to spend £5000 of that. So it has come out of the £10,000.

IQ

sohurtandlost

I get an income tax bill at the end of each financial year thankyou very much. I have been exempt from tax on previous years due to allowances when purchasing large items. I pay my national insurance each month and ALWAYS pay my way. I pay tax, bational insurance and a ridiculous amount of vat.

Icequeen99

sohurtandlost wrote: »

I get an income tax bill at the end of each financial year thankyou very much. I have been exempt from tax on previous years due to allowances when purchasing large items. I pay my national insurance each month and ALWAYS pay my way. I pay tax, bational insurance and a ridiculous amount of vat.

I don't think I suggested that you didn't pay your way. In fact, i was trying to be helpful and point you at the place that confirms what I had told you.

When I said you decided to spend the £5000, i was trying to show you that the £5000 had already been accounted for. Lets say you decided to spend the whole £10,000 on a new car for yourself, that would be fine because you have already been taxed on your profit and your income for tax credits is still £10,000. How you decide to spend your profit is up to you, just the same as an employed person is free to spend their income on whatever they want.

IQ