Sole trader & tax

buglawton

Tarambor wrote: »

When you are a sole trader the profit from the business is your wage and you pay tax on it at normal income tax rates. Your wages are not a tax deductible expense to your business as a sole trader, that would only apply if you were operating as a Limited Company.

In the above scenario

Turnover is £80,000 you have £50,000 of expenses so the remaining £30,000 is your wage and that is what is taxed as your personal taxable income no matter whether you pay yourself £10,000 out of it or the full £30,000.

The problem you're having is that you're reading advice for both operating as a sole trader and a limited company and getting it all mixed up. The two work differently. Sole trader is simple: Turnover - allowable expenses = your taxable income. Ltd Company is where all the more complicated stuff about paying yourself in dividends, as a drawing etc apply in order to try to minimise exposure to tax. With a Ltd Company the company gets a bill for tax, corporation tax, CAN count your wages as a tax deductible expense and you as an individual getting an income from that business pay income/dividend tax on that.

Fully agree and this is how I used to do my wifes web shop sole trader tax returns. Kept all receipts and outbound invoices, Paypal records etc. Totted it all up in an Excel workbook. Entered the numbers into the online HMRC tax return. Made sure she paid correct NI contributions, they counted nicely to her state pension entitlement.