Sole Trader profit/wages question

penny_pitstop

I am just about to do my self assessment online. My accounts are showing a profit of £3,500 but I have been paying myself this as a wage.
How do I show this on my accounts?

PlutoinCapricorn

You don't! As a sole trader, the concept of wages does not apply.

You pay tax on your profit, which is income minus legitimate business expenses. Any money you give yourself should come from what remains after you have paid tax.

Some people call the money you take for yourself 'drawings', but again this is not a legitimate business expense.

penny_pitstop

PlutoinCapricorn wrote: »

You don't! As a sole trader, the concept of wages does not apply.

You pay tax on your profit, which is income minus legitimate business expenses. Any money you give yourself should come from what remains after you have paid tax.

Some people call the money you take for yourself 'drawings', but again this is not a legitimate business expense.

Aha. now I get it. Thank you

PlutoinCapricorn

You are not the only person to have asked about this.

If you had a limited company, you could pay yourself a salary and this would be shown on the accounts, but you would also have to deduct your own tax and NI.

As a sole trader, if it were possible to treat the money you take for yourself as a business expense, you could take it all so have no profit, so would not pay any tax. This is obviously too good to be true: HMRC would never let it happen.

There was a journalist who did deduct the money he paid himself from his profit, and HMRC investigated him and gave him a very hard time.