Self Employed (Sole Trader) Tax Issue

Claire88772

Hello,

I have recently registered as self employed and registered with HMR for self assessment and class 2 national insurance contributions. I have also setup a business bank account (separate to my personal one).

I will be doing Mobile Hair and Beauty, working from home / going on visits in my personal car.

Here is what I plan to do:

When I complete jobs, customers will pay me cash. I will issue them with a receipt of payment (I have receipt books printed). I will then go to the bank once a week and put all the cash I have accumulated in the business bank account. E.g. 10 customers at £50 each, I will have put £500 in my business account at the end of the week. I will keep duplicates of the receipts I give out as proof.

In order to transfer this money from my business bank account to my personal account, and pay minimal tax, I plan to:
1 - Pay myself a salary, and keep it under the tax threshold (less than £11,500)
2 - Claim £0.45 per mile for my milage going to and from jobs, for the first 10,000 miles I do, and £0.25 for each mile thereafter.
3 - Pay my younger brother who is at college (who helps me on the weekends) a wage, and keep his salary under the tax threshold
4 - Pay myself some rent for using one of the rooms in my home for business use
5 - Purchase any business-related equipment (or expenses) from my business account

Now my questions are:

1) Is what I am doing legal?
2) Is there a better way to do it?
3) Is there any expenses I can claim for, which I haven't listed?
4) Any money that is left in the business account at the end of the year, does any tax need to be paid on it? Or should I ensure that no money is left in the business account at the end of the year (by claiming expenses)?

Any assistance is much appreciated.

Dazed_and_confused

You would probably benefit from a visit to an accountant, get a couple of recommendations from friends who are in business.

Alternatively can you explain how, as a self employed person, you intend to pay yourself a salary?

Cook_County

The drawings that you call salary will have no effect on the tax liability at all. The rent paid to yourself will have no effect at all.


Because MTD is probably still coming, start with digital software (eg Xero or QuickBooks) right at the beginning so you can cope with filing 5 tax returns a year in the future.

antrobus

Claire88772 wrote: »

..In order to transfer this money from my business bank account to my personal account, and pay minimal tax, I plan to:
1 - Pay myself a salary, and keep it under the tax threshold (less than £11,500)...

Doesn't work that way. You are self-employed, you will be taxed on your profits. How much you 'pay your self' makes no difference.

Claire88772 wrote: »

..2 - Claim £0.45 per mile for my milage going to and from jobs, for the first 10,000 miles I do, and £0.25 for each mile thereafter....

You can certainly do that if you opt for simplified expenses.
https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-

Claire88772 wrote: »

...3 - Pay my younger brother who is at college (who helps me on the weekends) a wage, and keep his salary under the tax threshold...

You can certainly do that. You might have to register with HMRC as an employer and operate PAYE.

Claire88772 wrote: »

...4 - Pay myself some rent for using one of the rooms in my home for business use..

£4 a week as Business use of home would be fairly standard and allowable. Simplified expenses allows you to claim more, but since yours is a mobile business, I'd guess most of the work won't be carried out at home.

https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

Claire88772 wrote: »

...5 - Purchase any business-related equipment (or expenses) from my business account...

Fair enough. But it doesn't really make that much difference.

00ec25

as Antrobus has pointed out, you are a sole trader. That means there is no distinction between "the business" and "you". Certain costs are allowable as costs against the business, but payments to yourself are not business costs, they are "drawings", ie you have drawn cash out of the business, you have not spent money on a business cost

Only if you were trading as a limited company would there be the distinction you are thinking in terms of when it comes to "salary" paid to the business owner.

be very careful when paying your brother: a) it cannot be less than the minimum wage and b) you do not want to pay over the threshold which requires you to register as an employer (£112 per week) and have to report payroll figures to HMRC every month using full blown payroll software. Note that any expenses at all which you pay him (eg travel), irrespective of the size of the wage, will trigger the requirement to register as an employer - see here for the checklist:

https://www.gov.uk/register-employer