HOW MUCH TO PAY YOURSELF AND PUT ASIDE FOR TAX AS A SOLE-TRADER
As a sole-trader, you’re not directly employed by someone and therefore don’t receive a regular wage in the traditional sense. So, Your Tax Shop understands that you may be wondering, how do I pay myself as a sole-trader, and then make sure I have enough money left to cover any tax due? This is where Your Tax Shop are here to help.
Your Tax Shop advises that it is important to keep a track of any personal ‘drawings’ which you take from your sole-trader business to pay yourself. This helps you to keep on top of your bookkeeping and helps when it comes to calculating your profits. You will eventually pay tax on your profits and therefore will also need to budget and put some money aside for a rainy day i.e. when it comes to paying your tax bill!
How do I pay myself from my business?
Although there is no requirement to set up a business bank account for your sole-trader finances, Your Tax Shop strongly advise for you to set up a new current account to help keep your business and personal transactions separate.
Your Tax Shop also recommends that you keep a record of how much you have paid yourself, along with your other incomings and outgoings. If you’re struggling to stay on track with organising your bookkeeping, see Your Tax Shop’s video on how to download their MyAccountants app here.
How much should I put aside to pay my tax?
As a sole-trader, you’re taxed on the profits that your business makes through an annual Self-Assessment tax return. Essentially, your profits are the income that your business receives, minus any allowable business expenses incurred. These expenses must be purely for business and must not include any personal expenditure.
Your Tax Shop can help advise you on what you should be including as allowable business expenses to ensure that you’re paying the correct amount of tax.
Your Tax Shop recommends for you to set aside 25% of your profits (incomings less outgoings), if your profit is less than £50,000. If your profit is above this figure, then you will need to set more aside, or maybe consider the tax benefits of setting up a limited company.
How are my profits reported to HMRC and how do I pay?
Your Tax Shop can confirm that your profits are reported to HMRC each tax year via a Self-Assessment tax return. Your Self-Assessment must be filed and all taxes you owe must be paid before the 31st January each year.
Your Tax Shop would also like to advise that if your tax bill is more than £1,000 for the year, you’ll be required to make Payment on Accounts towards the next tax year’s liability. This is HMRC’s way of ensuring that the tax is paid regularly and correctly. Alternatively, if you believe that you won’t have as much as a profit in the next tax year, Your Tax Shop may be able to reduce your calculated Payment on Accounts for you!
Want some further information on this topic? Your Tax Shop is renowned for stepping away from the typical accountancy stereotypes of being daunting and boring, by introducing new, innovative ways of caring for our clients and offering them simple, easy-to-understand advice. We’re always on hand to help as your business flourishes and grows. Contact us today on 0161 339 5689 or book an appointment!