Paying Yourself.

[Craig - Dragon Discos]

It may be a daft question, but what's the best way to pay yourself?
I'm only in my second year as a declared sole trader and last year (and probably this year too) I made a loss due to investing in kit etc. until now, the only money I have taken out of the business is milage claims. If things go right I will be making a profit next year, so how do I pay myself from the business?
Let's say I wanted £200 (for round figures) do I just take £200 and put it in my books as wages? What about the tax on it? Would i be able to pay the tax (£40) out of the business acount too, or does that have to come from my personal account? I currently pay NI every 3 months (or is it 6 now?) and that comes out of the business account.
Also, if I can take the tax out of the business account, can I put it in a saver account until the tax bill is due? Ie. pay myself £200, then put £40 in a saver account until the following april and earn interest? But would this interest also be taxable?

Does any of what I have said make sense? It does in my head lol

[Vectis]

Craig

Your entire post shows total naivety in all things tax and benefit related. I think you may be in for a few big surprises!

I would strongly advise you to make an appointment with a qualified accountant ASAP. Based on what you've written here they'll save you a fortune and be well worth their fee.

But one quick tip for the future - budget 30% for tax and NI not 20....

[Craig - Dragon Discos]

I already have an accountant, but I admit I know next to nothing (hence the post) I only ask because I haven't taken any money as yet, everything I have earnt has been re-invested into the business

[NKR]

I already have an accountant, but I admit I know next to nothing (hence the post) I only ask because I haven't taken any money as yet, everything I have earnt has been re-invested into the business

Then why not ask the accountant as they tend to know better than anyone else. Do you not discuss your business with them?

[leelive]

30% for Tax and NI!> That must be if you DJ as a second job.
After taking into account the tax threshold and allowable expenses I paid less than 5% on £28k in my last tax year for both! Have to admit I do spend a lot on the business during the year.... so have paid 20% VAT on purchases so there is no getting away from tax one way or another.
Having an accountant friend and reading a simple Tax books each year helped.

[DazzyD]

30% for Tax and NI!> That must be if you DJ as a second job.
After taking into account the tax threshold and allowable expenses I paid less than 5% on £28k in my last tax year for both! Have to admit I do spend a lot on the business during the year.... so have paid 20% VAT on purchases so there is no getting away from tax one way or another.
Having an accountant friend and reading a simple Tax books each year helped.

Ah, but you mustn't know Martin very well!

In the past, Martin has stated that he used to put 30% away in to a savings account until it was time to pay his tax bill. He also made a comment of being able to afford a nice little break away with what was left over!!!

Must admit, when it comes to money, Martin is no !

[DazzyD]

Actually, just read that post again. Tax threshold I get but allowable expenses? We are talking Income Tax here, aren't we?? Once you've paid yourself surely the 20%, 40% and 50% Income Tax rates would apply and there are no allowable "expenses"? Am I missing something here or you confusing "allowable expenses" with "personal allowances"? Because, when doing your accounts, you would take away any allowable expenses before you get anywhere near paying yourself, right?

[Vectis]

Actually, just read that post again. Tax threshold I get but allowable expenses? We are talking Income Tax here, aren't we?? Once you've paid yourself surely the 20%, 40% and 50% Income Tax rates would apply and there are no allowable "expenses"? Am I missing something here or you confusing "allowable expenses" with "personal allowances"? Because, when doing your accounts, you would take away any allowable expenses before you get anywhere near paying yourself, right?

Hence my original riposte