End of year help

Poppy9

NiceGuyEddie wrote: »

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.

e 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.

So are you saying a sole trader can take money out of a business for personal use and not have to declare it to the tax man?

You are being confusing in your posts here.

As previously said drawings are not an allowable expense so OP should adjust their profit accordingly then a sole trader will pay on on their true profit - though they do of course have the same tax allowances as an employee

baz2277

Hello again. Thanks for input so far. Just to clarify, I am a sole trader and the figures are all ex vat. I thought I would need to pay for something on my drawings, but didn't know how much. The figure of 10k is after every outgoing I have. Thanks again for your responses.

nomunnofun

Poppy9 wrote: »

So are you saying a sole trader can take money out of a business for personal use and not have to declare it to the tax man?

You are being confusing in your posts here.

As previously said drawings are not an allowable expense so OP should adjust their profit accordingly then a sole trader will pay on on their true profit - though they do of course have the same tax allowances as an employee

You are only partly correct. The op has clearly said that he/she has made a profit of 10k but has openly stipulated that this is after deducting drawings of 20k. While most know that the actual profits of the business are, therefore, £30K (*see rider below) one presumes that the op is looking at it from the point of view that he/she has been able to take out such drawings and yet increase the balance sheet by 10K.

*To arrive at the 30K we must also have assumed that no cash has been introduced by the op (unlikely), and no loans or other finances introduced.

In short, it would be better if the op had not mentioned drawings altogether as it clearly does not reflect the true profits of the business.

However, it is not correct to say the following:

So are you saying a sole trader can take money out of a business for personal use and not have to declare it to the tax man?

For example:

a business makes a profit of £30000 in the first year. FROM THAT profit the owner takes drawings of £15000. The taxable profit is £30000.

In the second year, he makes £15000 profit and takes £25000 drawings. He will be taxed on £15000.

Drawings irrelevant for tax purposes.

bris

In this case being his first full year I am assuming he had made 30k profit so will pay tax on that less personal allowance.

The 10k left in the business, well it's not really left in the business just his money, can be taken next year tax free so it forms part of next years drawings but does not go through the books again.

Poppy9

nomunnofun wrote: »

However, it is not correct to say the following:

So are you saying a sole trader can take money out of a business for personal use and not have to declare it to the tax man?

That is what I believe but the other poster seemed to be saying that you can.

nomunnofun

bris wrote: »

The 10k left in the business, well it's not really left in the business just his money, can be taken next year tax free so it forms part of next years drawings but does not go through the books again.

1) Drawings are always tax free. They have absolutely nothing to do with profit. Make 10k profit and take 20K drawings and you will be taxed on 10k profit. Bank manager will not be happy though!

2) Drawings should always 'go through books'

nomunnofun

Poppy9 wrote: »

That is what I believe but the other poster seemed to be saying that you can.

The other poster is correct. I agree entirely with post 11.

Laurajo_2

In your profit figure, OP, have you included the personal drawings of 20k when it comes to calculating your 10k profit? Ie you have deducted them as an expense.

Sorry, i misread your first post and took it to mean you had made 10k profit (which should always be the amount without taking into account the drawings you have made - just the income and business expenditure).

Also you mention it's your first full year of trading - so presumably you started jam/feb 2013? You will therefore need to complete an SA return for the profits for the period up to 5 April 2013.

What is your business year end?

nomunnofun

Laurajo wrote: »

In your profit figure, OP, have you included the personal drawings of 20k when it comes to calculating your 10k profit? Ie you have deducted them as an expense.

Sorry, i misread your first post and took it to mean you had made 10k profit (which should always be the amount without taking into account the drawings you have made - just the income and business expenditure).

Also you mention it's your first full year of trading - so presumably you started jam/feb 2013? You will therefore need to complete an SA return for the profits for the period up to 5 April 2013.

What is your business year end?

Agreed. If the op's profits for the year to 31st January 2014 are indeed £30000, the proportion relating to 2012/13 will be 64/365 of this which is 5260. If this is the only income in 2012/13 tax year, no tax to pay on 31st January 2014 or 31st July 2014.

The op should be entering his complete income and expenditure for the FULL year ended 31st January 2014 on the 2012/13 return and entering a figure in the adjustment box. On next years return for 2013/14 the same figures for the year ended 31st January 2014 are required (simply state ' see 2012/13 return' ) and the overlap profits are £5260.

In this case declare full profit of £30000 with -24740 (minus 24740) entered in the following box.

If your basis period is not the same as your accounting
period, enter the adjustment needed to arrive at the

profit or loss for the basis period –

if the adjustment

needs to be taken off the profit figure, put a minus

sign (–) in the box

Calculating basis periods when the accounting year does not match up with the tax year is not for beginners.

chrismac1

In my view anyone with sales of £180k should at least have a consultation or two with an accountant and we have nowhere near enough information in this thread to give any sort of tax and NI calculation. Unless I have missed something, we don't know for sure:

1. If this is a limited company or sole trader.
2. What the nature of the trade is.
3. Whether there is capital expenditure included in the "outgoings".
4. Whether there is any stock.
5. It could easily be the case that there is material accrued income, prepayments or accruals depending on the nature of this trade.

So in terms of the tax calculation, sticking a finger in the air is just as likely to come up with the correct answer as any other method at this stage.