Tax as sole-trader?

Giggs_11

lpgm wrote: »

In your example, you took off £70,000 to arrive at the profit figure. It's this figure that would have to go in your tax return. It would have to be made up of proper business deductions and expenses, like cost of sales, staff wages (but not your own living expenses), insurance, utilities, phone bills, paperclips... Certainly not random 'lump sums'.

I assumed that you would need to put your whole revenue in the tax return?

lpgm

Giggs_11 wrote: »

I assumed that you would need to put your whole revenue in the tax return?

Absolutely. And a whole load of other numbers! I'm just pointing out that the tax man's interested in your business expenses (£70,000), not your own personal living expenses (what you do with your after tax income). I think you might be muddling them up here.

Lovelyjoolz

Giggs_11 wrote: »

I understand. So how would you have a receipt/invoice on drawings? Would I need to create one and just state that it's wages?

You wouldn't. You only have receipts and invoices on business expenses. What you spend your money on (beer, food, clothes etc) is not a business expense and so HMRC aren't concerned about it.

Look, say you went and bought a load of bricks for £7000. You then sold them to me for £10000. You make £3000 profit. Your tax return would say this:

Sales: £10000
Cost of sales (expenses): £7000
Profit: £3000

The taxman will want £600 (20% of profit) from you in tax, but not until 2015.

This £3000 is sat in your bank account and you spend £2000 of it on rent and £1000 on takeaways and beer. You have nothing left. When the taxman sends you his bill in 2015, he will still want 20% of your profit, regardless of what you spent it on and you have to find the £600 to pay him. Which is why you were told in a previous post that you must set aside this money and not spend it.

You have to get your head around the fact that as a sole trader you do not pay yourself wages. Your living expenses are entirely separate from your business expenses.

CKhalvashi

The way I used to do this (before we went Ltd, and then PLC) was to leave 50% of my profit sat in the business account, take the other 50% to live on, and you've got your tax money and a 'bonus' at the end of the year.

Whatever the profit is, will have to be taxed, and there's no way around this.

Your tax will be

Income (minus) allowable expenses (multiply) applicable tax rates. For this year, it's 0%, 20%, 40% or 45%, or most probably a combination of these, then National Insurance payable at the applicable rate.

This is why I suggest leaving 50% to one side, so you know that there's money at the end to pay the tax bill.

CK

nomunnofun

What would concern me, with every respect to the op, is that the original question concerned the potential difficulties in becoming a sole trader and then progressed to some basic questions regarding self-assessment. How difficult the process is really depends on the knowledge of the individual and the op does appear to have little or no idea as to what is required simply by reference to the questions asked. It could well be that £300 pounds on spent on an accountant (tax deductible) will save the op considerably more than this amount not to mention a lot of grief and worry as to the accuracy of the submissions.

At the moment I have a very sweaty looking man digging up my garden with a mini digger in order to replace my septic tank and soakaway. I also happen to prepare his accounts and tax returns. I would never have considered posting on a forum - How do I fix my sewage problem because I would not have a clue? Horses for courses!

Savvy_Sue

nomunnofun wrote: »

At the moment I have a very sweaty looking man digging up my garden with a mini digger in order to replace my septic tank and soakaway. I also happen to prepare his accounts and tax returns. I would never have considered posting on a forum - How do I fix my sewage problem because I would not have a clue? Horses for courses!

:rotfl: this is so true, I'm not an accountant and therefore have no profit motive in mind, but I have asked posters in the past what their passion is and what they want to spend their time and energy on? If the answer is NOT their bookkeeping and accounts, then money paid to someone else to do these things while they concentrate on their core business (hopefully making money!) is money well spent!

The trick is to find the right person, either for the sweaty digging, or the book cooking.

Brassedoff

InsideInsurance wrote: »

Its a little more complex.

Class II NIC is paid as you go but is a low figure (a couple of pounds a week from memory)

The rest of your tax is dealt with by your self assessment (assuming you arent VAT registered). You do the tax assessment annually by january of the following year. So April 2013 to April 2014 has to be submitted online in Jan 2015 and paid by the end of the same month.

As to records, you need to keep records of all incoming and outgoing monies in terms of receipts, invoices, bank statements etc for 7 years (effectively).

For a small business it is not onerous as long as you get in a good habit from the outset and keep it in terms of maintaining spreadsheets or ledgers of all the monies and filing the paperwork.

Bang on advice that man or woman. If the OP want to use software, the referrers board has lots of money off codes for programmes that will do all our calculations , but with a discount.

Milky_Mocha

One of the reasons I find forums very useful is that you can ask what might appear to others as a basic question but is of immense help to yourself. I have read this thread with interest as I myself have the exact same questions as the OP. I don't want to engage chargeable services of an accountant just yet in case the tax structures and rules are such that I cannot progress with my business ideas at this time and would end up losing the accountant fee paid. After gaining some basic knowledge, including learning from experiences of others who have been there/done that, I can progress to the next stage.

I consider myself reasonably intelligent. In my field of work/expertise I'm highly intelligent but I'm still learning and understanding the rules and options of setting up a business. I imagine the OP is similar. Thanks to all replies on this thread as it has greatly helped me too.

nomunnofun wrote: »

What would concern me, with every respect to the op, is that the original question concerned the potential difficulties in becoming a sole trader and then progressed to some basic questions regarding self-assessment. How difficult the process is really depends on the knowledge of the individual and the op does appear to have little or no idea as to what is required simply by reference to the questions asked. It could well be that £300 pounds on spent on an accountant (tax deductible) will save the op considerably more than this amount not to mention a lot of grief and worry as to the accuracy of the submissions.

At the moment I have a very sweaty looking man digging up my garden with a mini digger in order to replace my septic tank and soakaway. I also happen to prepare his accounts and tax returns. I would never have considered posting on a forum - How do I fix my sewage problem because I would not have a clue? Horses for courses!

Giggs_11

Milky_Mocha wrote: »

One of the reasons I find forums very useful is that you can ask what might appear to others as a basic question but is of immense help to yourself. I have read this thread with interest as I myself have the exact same questions as the OP. I don't want to engage chargeable services of an accountant just yet in case the tax structures and rules are such that I cannot progress with my business ideas at this time and would end up losing the accountant fee paid. After gaining some basic knowledge, including learning from experiences of others who have been there/done that, I can progress to the next stage.

I consider myself reasonably intelligent. In my field of work/expertise I'm highly intelligent but I'm still learning and understanding the rules and options of setting up a business. I imagine the OP is similar. Thanks to all replies on this thread as it has greatly helped me too.

I guess I couldn't have put it better myself.

FreddieBear

Hi

If i want to show a net profit of 18,500 How much money is this before tax? I own a small buisness and am about to submit my earning to my accounant but as this is my first year have lots of cash going in and out, but dont want to get a large tax bill but at the same time need to show a net of 18500 to secure my morgage. Can someone help me please?