Covering Business Expenses

JimBob877

Hello,

Set up as a sole trader recently. I transferred funds into my business account from my personal account to cover some advertising costs due to waiting for some funds to clear into the business account. Once clear am I able to transfer back what I put in without it being considered salary? 

simongregson

If you are a sole trader you can transfer backwards and forwards as much as you like, because you are not a separate entity to your company. However, you do need to keep good tabs on where your money has come from and going out to, so you don't count the transfer in as income or the transfer out as an expense (you can effectively ignore it as far as completing your income for self assessment, as far as tax is concerned it is just you moving your own taxed money between accounts, but I always make a note on transfers like this in online banking to make it clear what it was)

JimBob877

Thank you, yes I will note it in the reference when I transfer it back into my own account so it matches up. This is just something I’m doing for few hours a week as a side to my full time role so don’t plan to take a salary and have been reinvesting any money made back into the business on new stock. Could I ask what I should count this as? Would it be an owner withdrawal? However I read this is taxable? Therefore would I need to declare it even though I’m currently running at a loss. Sorry for all the questions 

MattMattMattUK

JimBob877 said:

Thank you, yes I will note it in the reference when I transfer it back into my own account so it matches up. This is just something I’m doing for few hours a week as a side to my full time role so don’t plan to take a salary and have been reinvesting any money made back into the business on new stock. Could I ask what I should count this as? Would it be an owner withdrawal? However I read this is taxable? Therefore would I need to declare it even though I’m currently running at a loss. Sorry for all the questions 

There is no "taking a salary" when you are self employed, if the self-trading makes a profit you pay tax, if it does not then you do not pay tax. There is no "owner withdrawal" because as Simon says you and the business are the same legal entity. What happens is at the end of the tax year you submit a self assessment, income less allowable expenses and you are taxed on the profit, if you are running at a loss then you still need to submit self assessment, but you would not pay any tax as you only pay that on net income (profit).

JimBob877

Ah ok thank you. Sorry I was thinking more for things like benefits which we have to submit earnings for. I didn’t know if it counts as an earning if I transferred the cost of what I paid back out. 

simongregson

As Matt says it's not a withdrawal from a company, as a sole trader having a business account might be useful but it is really just another account in your name. You could at no effect have just paid for the advertising from your personal account and recorded it as an expense. Equally you could just keep your business money in £50 notes in your wallet and spend it on your shopping, there is no requirement to separate it unlike if you set up a separate legal entity like a limited company, your business account just means you can keep the business transactions separate to help you work out your business profit/loss - it maybe improves your business image and also if your business records get audited it makes your life easier. In online banking I would use the 'transfer' category as if you use automatic accounting software it should see this is not income or expense, but then record the actual advertising spend in the 'advertising' category, which will count it as an expense to be deducted to work out your self-employment net income.

JimBob877

Thank you, I use quick books and recorded it as an expense and attached the receipt. Just want to make sure like I mentioned that if I were to pay/transfer it back into my personal account it doesn’t count as earnings.