End of year help

baz2277

Hi all,

I'm just wondering if anyone can help re end of year bits - it'll be my first full year of trading at the end of Jan, the business is set to make a profit of around £10k (on a turnover of about £180k) after vat, and personal drawings of mine of around £20k.

What will I be looking to pay in terms of other taxes and any tax etc on my drawings, and when? Sorry, don't know if that's too simple a way of putting it - I'm aware of some of the things but not all.

Thanks in advance

Suarez

You would need to provide more info than than.

Do you have any other earnings? There will be tax reliefs and allowances that can be claimed but without knowing what you have spent money on it's impossible to know.

I should imagine it will be approx £4000.

Laurajo_2

On 10k profit?

Assuming that's your only income, the tax and class 4 NI will be around £560 ish.

Your personal drawings don't matter.

Icequeen99

Laurajo wrote: »

On 10k profit?

Assuming that's your only income, the tax and class 4 NI will be around £560 ish.

Your personal drawings don't matter.

But the OP can't deduct the personal drawings in arriving at the 10k figure. So the profit would actually be 30k on which tax would have to be paid?

IQ

hunnie

'Your personal drawings don't matter'

What does this mean? I thought all personal drawings were income and as such libel to personal income tax.


Regards, Hunnie

Poppy9

hunnie wrote: »

'Your personal drawings don't matter'

What does this mean? I thought all personal drawings were income and as such libel to personal income tax.


Regards, Hunnie

You are correct. Any money you take out of the business for personal use are subject to income tax.

In this case if the drawings are £20k (assuming it doesn't include the VAT) then you will be taxed on £30k.

The OP needs to ensure they understand what they can and not claim as allowable expenses. There is a lot of info on the web to help or even use an accountant for a year or so and learn from how they draw up their accounts.

NiceGuyEddie_2

Poppy9 wrote: »

You are correct. Any money you take out of the business for personal use are subject to income tax.

Absolutely not correct, what makes you think this is the case Poppy9?

Sole traders pay tax on their taxable profit, not on drawings. Drawings are a reduction to the capital account, they're not an expense of the trade and nor are they taxable income for the sole trader.

phill99

You are all making an assumption that the OP is a sole trader and not running through a limited company.

If self employed, tax is payable, as niceguyeddie says on total PROFIT that the op makes. Drawings may well exceed profit.

If the OP runs through a limited company, then drawings are seen as income and income tax will be paid on these. The remaining £10k profit will be attract corporation tax.

Poppy9

NiceGuyEddie wrote: »

Absolutely not correct, what makes you think this is the case Poppy9?

Sole traders pay tax on their taxable profit, not on drawings. Drawings are a reduction to the capital account, they're not an expense of the trade and nor are they taxable income for the sole trader.

If OP a sole trader then the drawings for personal use is classed as income for them and as such is subject to income tax.

Or you just add back your drawings to your "profit" after drawings and are taxed on the true profit of the business.

The OP said their profit was £10k after VAT and drawings of £20k - they were not clear if £20k included VAT or was just personal drawings.

hunnie

This is getting more confusing!


Surely drawings are almost irrelevant. The tax man is not interested in what you chose to spend on yourself, just on your
income-expenses=profit. ?
Drawings will vary. If by withdrawing money for personal use we can reduce our tax liability why don't we just take the lot ?


I think I must have misunderstood somewhere along the posts here ?


Hunnie

NiceGuyEddie_2

Poppy9 wrote: »

If OP a sole trader then the drawings for personal use is classed as income for them and as such is subject to income tax.

Or you just add back your drawings to your "profit" after drawings and are taxed on the true profit of the business.

The OP said their profit was £10k after VAT and drawings of £20k - they were not clear if £20k included VAT or was just personal drawings.

But again, what makes you think that? I'm a chartered accountant and I can comfortably say that drawings are not subject to income tax.

If the OP has deducted drawings in determining their profit from the year then that is incorrect, but it is also incorrect to say that drawings are subject to income tax. They are not.