P
Paul Inkwell
- Original Poster
- #1
Hi everyone!
I'm in the process of setting up a small retail busines, and hope someone might be able to help with a tax query.
Once I start the business I'll be registered as self-employed. I want to pay myself a small monthly salary.
As I understand it, this will be recorded on my accounts as a 'drawing', an expense, and again as I understand it, you do not pay tax on a business expense.
Obviously you are taxed at the end of the financial year on your net profit.
What I don't quite understand, then, is what's to stop a sole trader at the end of the financial year transfering every penny of that net profit to a personal account as a 'drawing', and therefore not pay tax on it? Sensible buisness practice aside, what is the benefit of leaving any money in the business account as taxable net profit, when it can be withdrawn as an expense and not pay tax on it?
Or, am I wrong about not paying tax on my 'drawings' / salary? And if I am wrong, does this meanl I will pay tax at the year end both on what I've taken as drawings over the course of the year, and my net profit?
Please advise!
I'm in the process of setting up a small retail busines, and hope someone might be able to help with a tax query.
Once I start the business I'll be registered as self-employed. I want to pay myself a small monthly salary.
As I understand it, this will be recorded on my accounts as a 'drawing', an expense, and again as I understand it, you do not pay tax on a business expense.
Obviously you are taxed at the end of the financial year on your net profit.
What I don't quite understand, then, is what's to stop a sole trader at the end of the financial year transfering every penny of that net profit to a personal account as a 'drawing', and therefore not pay tax on it? Sensible buisness practice aside, what is the benefit of leaving any money in the business account as taxable net profit, when it can be withdrawn as an expense and not pay tax on it?
Or, am I wrong about not paying tax on my 'drawings' / salary? And if I am wrong, does this meanl I will pay tax at the year end both on what I've taken as drawings over the course of the year, and my net profit?
Please advise!
