Paying tax - business/self employed

bluenitsuj

Hi
If you ran a small business,I understand that you have to do your own tax and national insurance. Is this based on the net profit of a company? and what if you take a wage from the company, do you have to then fill out a tax return again. i presume it is done on the companies profit and not your earnings.

anamenottaken

A "small business" can be a limited company or can be a partnership or on a sole trader basis.

If it is a limited company (private or public limited company), it is a separate legal entity. It can employ people, including the owner(s), and as such pay them under PAYE regulations and therefore pay Employers NI and deduct tax and NI from its employees' earnings. It can also pay the owner(s) by way of dividends.

If the business is run as a partnership or sole trader then these people are self-employed.

bluenitsuj

anamenottaken wrote: »

A "small business" can be a limited company or can be a partnership or on a sole trader basis.

If it is a limited company (private or public limited company), it is a separate legal entity. It can employ people, including the owner(s), and as such pay them under PAYE regulations and therefore pay Employers NI and deduct tax and NI from its employees' earnings. It can also pay the owner(s) by way of dividends.

If the business is run as a partnership or sole trader then these people are self-employed.

So if the business is a partnership or sole trader, I would have to pay tax on the net profit of the company? or I take a wage each month, and do a tax return on that, and the company would be liable for business tax as well.
I am very confused.

runninglea

if you run a sole trader or business:-

For example Sales 50K
Expenses 40K

Net profit 10K

You pay tax through self assessment on the 10k Net profit

Your wages do not appear in the expenses, anything you take per month is drawings

You will have your tax code of 801 which means you can earn £8010 before taxable unless you have other income as well

bluenitsuj

runninglea wrote: »

if you run a sole trader or business:-

For example Sales 50K
Expenses 40K

Net profit 10K

You pay tax through self assessment on the 10k Net profit

Your wages do not appear in the expenses, anything you take per month is drawings

You will have your tax code of 801 which means you can earn £8010 before taxable unless you have other income as well

So, is the net profit taken before or after I take my wages? Could I take eg £650 per month and declare ( being under the taxable income ) then withdraw, say, £1,000 extra and not declare ( not saying I would do this )

runninglea

bluenitsuj wrote: »

So, is the net profit taken before or after I take my wages? Could I take eg £650 per month and declare ( being under the taxable income ) then withdraw, say, £1,000 extra and not declare ( not saying I would do this )

You dont get wages if your self employed.

Your self assessment for the year will be 10K profit.

You can draw £10 per week or £500 you will still be assessed on 10K.

Your net profit is basically what you get assessed on and therefore what you get taxed on

anamenottaken

bluenitsuj wrote: »

So if the business is a partnership or sole trader, I would have to pay tax on the net profit of the company? or I take a wage each month, and do a tax return on that, and the company would be liable for business tax as well.
I am very confused.

If it's a partnership that means that it is more than one person. The partnership should set out the share that each has. Each individual is taxed on their share.

If you are operating as a sole trader (who may employ others by the way and their pay and related employers NI are expenses of the business), you pay tax on the business profits. Your drawings (money taken out of the business) are not separately taxed. You and the business are one as far as tax is concerned.