Income: sole trader vs limited company

zing_red_squirrel

I'm toying with the idea of starting an online business (just by myself). If the business brings in money, at what point does that become income for me? As I understand, money brought in by the business is associated to the business and it only becomes my personal income when I pay myself (via a salary or dividend)? Are there any differences between sole trader and limited company in terms of when it is classed as my income?

sliphi

zing_red_squirrel said:

I'm toying with the idea of starting an online business (just by myself). If the business brings in money, at what point does that become income for me? As I understand, money brought in by the business is associated to the business and it only becomes my personal income when I pay myself (via a salary or dividend)? Are there any differences between sole trader and limited company in terms of when it is classed as my income?

It's difficult to sugar coat this, but unfortunately you have demonstrated you have little or no understanding of this at all.

I would urge you, especially in those circumstances, to consult an accountant who can hold your hand and guide you through the options.

oldbikebloke

sliphi said:

zing_red_squirrel said:

I'm toying with the idea of starting an online business (just by myself). If the business brings in money, at what point does that become income for me? As I understand, money brought in by the business is associated to the business and it only becomes my personal income when I pay myself (via a salary or dividend)? Are there any differences between sole trader and limited company in terms of when it is classed as my income?

It's difficult to sugar coat this, but unfortunately you have demonstrated you have little or no understanding of this at all.

wholeheartedly agree.
OP you have not the first idea what "personal" income means in the context of "business"

bris

Tax  is payable on profit, so if the 5k you are talking about is profit then you fill out a self assessment for that 5k and pay tax on it.
Your 30k would be noted on the form but you would be PAYG with that so you would have to pay tax on the 5k so the 35k is your income.
For a Ltd company you could just take it as a dividend but the tax man still gets tax on it as you would still need to declare this. Ltd companies need a hell of a lot more paperwork though so you would really need an accountant to handle this, not worth it if you think the profits would be as small as the 5k you mention.

oldbikebloke

techno79 said:

The £30k and £5k are not real figures, they are just for illustrative purposes.
Is there a way I can leave the £5k associated to the company (as a sole trader) such that it doesn't count towards my personal gross income?

if you continue to think "company (as a sole trader)" you will never understand the options until you learn the difference between sole trader and company (in the context you are using those words).

You are asking for simple facts already written down in countless other places ready for your own reading instead of asking folks to repeat potted thoughts that have been answered already :
https://www.informdirect.co.uk/business-management/what-is-a-sole-trader/

https://www.crunch.co.uk/knowledge/company-structure/what-is-a-sole-trader/

https://smallbusiness.co.uk/what-is-the-definition-of-a-sole-trader-and-being-selfemployed-254775/

https://startups.co.uk/what-is-a-sole-trader/

https://www.gov.uk/set-up-sole-trader

bris

techno79 said:

bris said:

Tax  is payable on profit, so if the 5k you are talking about is profit then you fill out a self assessment for that 5k and pay tax on it.
Your 30k would be noted on the form but you would be PAYG with that so you would have to pay tax on the 5k so the 35k is your income.
For a Ltd company you could just take it as a dividend but the tax man still gets tax on it as you would still need to declare this. Ltd companies need a hell of a lot more paperwork though so you would really need an accountant to handle this, not worth it if you think the profits would be as small as the 5k you mention.

The £30k and £5k are not real figures, they are just for illustrative purposes.
Is there a way I can leave the £5k associated to the company (as a sole trader) such that it doesn't count towards my personal gross income?

I know they are not real figures. No, as a sole trader you are not a company it's your profits and you need to do a self assessment and pay your tax.

Pennywise

techno79 said:

s there a way I can leave the £5k associated to the company (as a sole trader) such that it doesn't count towards my personal gross income?

As a sole trader, yes, spend the £5k on equipment etc to reduce the profit to zero, then it won't count as your personal income.

Mistral001

If you are a sole trader your profit is income minus expenditure.  You do not a have a choice on what you pay yourself or submit to HMRC as profit.  

Also as a sole trader the business starts when you start to trade and not when you start to make a profit.  Note you can have a business trading name and employ people as a sole trader.  The "sole" of "sole trader" refers to one person being personally responsible for all financial responsibilities of the business and not to the number of people working in the business.  Many people new to business (and some in business) get confused my this and think that all sole traders are people who work alone.