How to pay myself when self employed? HELP!

[S90GAM]

Hello there,

I hope someone can give me a bit of advice,

I've been self employed now for over a year as a plumber, basically i would like to know how i go about paying myself.

what i do now is every saturday morning pay any cash and cheques i get from the weeks work, usually around £600 - £800 cash and around £400 in cheques into the business account, then when cleared transfer 50% of the weeks takings into my personal account as a wage for myself, and the rest is kept for materials and tax etc I've been doing it this way now for over a year and was wondering if there is an easier way of paying myself and keeping everything above board and accounted for?

I've been working with a few other trades and they simply pay the cash into there own account or keep at home and pay any cheques into the business account and just write down how much they have taken. i was told different.

Sorry if its a stupid question by i want to make sure everything is put through the books and recorded correctly that's why i've been doing it this way but is a lot of hassle wanting for money to clear, it would be easier if i could pay myself say £500 cash from the week takings into my own account without having to pay into business account then transfer to my own account and then withdraw what i need etc

Any help would be most appreciated.

 

[elaine@cheapaccounting]

I can send you are free guide that will explain how to pay yourself and what you can claim for tax - just PM me your email

 

[Jenni384]

When you're self employed, you don't actually have "wages" but any profit you make is automatically yours.

You pay tax on your profits (income less expenses) not on what you take as 'wages' (and any monies you do take are not allowable expenses).

You can bank the money into the business account and transfer it over, or you can just take the cash. The key point is making sure you record it all, and keep accurate records. If you have an accountant, you need to make it clear where the money has gone to keep their life simple and thus your fees down.

It is 'better' to bank everything and then transfer your own drawings. That way, everything is nice and 'clean' and simple to see.

However, life isn't clear and simple, and so we are all used to seeing traders being paid cash for an invoice and not banking it. As long as you make a clear note that this is what happened, that is ok.

What is not ok is taking cash and not declaring it (obviously) or banking cash and cheques willy nilly and not keeping a record of how that ties up to your sales.

If HMRC look into your affairs, you want to be able to show them what's happened without them being able to jump to conclusions and assess you for more income than you had. So, a clear paper trail is needed.

Ok, shutting up now, I think I've said the same thing about 3 different ways

 

[weevil68]

Hi,
I'm a sole trader as well and I use quite a simple system.

I pay all cash, cheques into business account and pay myself a "wage" by standing order monthly.
I also have a seperate business savings account into which I transfer 30% of my gross profit every month.This covers my income tax and NI and keeps the funds seperate to my working capital.
Doing it this way is easy and I know that all the funds in my current account are also my earnings and drawable at any time.
Hope this helps

 

[KidsBeeHappy]

Ditto Jenny, really.

What you are doing has a very good paper trail and if you ever get an inspection/visit from HM then what you are doing is making it all very visible and followable (if that's a word).

Those that keep the cash and bank the cheques open themselves up to greater scruitany from the lovely revenue people.

 

[InPrintImaging]

You could do it either way, but taking the cash sales directly as drawings could arouse the suspicion of the tax inspector, because it could look like business sales are "going missing". You are better off banking everything that is a business receipt to the business account and then paying yourself a cheque/transfer for "drawings", that way there is a clear record to see, less suspicion that money is being lost.

 

[David Griffiths]

. You are better off banking everything that is a business receipt to the business account and then paying yourself a cheque/transfer for "drawings", that way there is a clear record to see, less suspicion that money is being lost.

The problem with that is that most high street banks charge high fees for banking cash to a business account. Many businesses avoid banking cash for that reason. They also charge money for taking cash back out again!

Provided that the receipt is correctly recorded, there is no problem using the cash for personal purposes and recording your drawings as you make them

 

[InPrintImaging]

The problem with that is that most high street banks charge high fees for banking cash to a business account. Many businesses avoid banking cash for that reason.

Provided that the receipt is correctly recorded, there is no problem using the cash for personal purposes.

I'm not saying you can't do it, but if you do, HMRC may allocate you to a higher risk category ie more likely to get inspected, and if you do get inspected, they may want to start poking around your personal bank account if they havn't done so already.

 

[InPrintImaging]

I remember one accountant I spoke to a while back, who said he specifically didn't like dealing with cash businesses because of the problems like that.

 

[David Griffiths]

I'm not saying you can't do it, but if you do, HMRC may allocate you to a higher risk category ie more likely to get inspected, and if you do get inspected, they may want to start poking around your personal bank account if they havn't done so already.

How do they know that you are in a "higher risk category" unless they've looked at the business records? And they can only look at the business records if they've already opened an enquiry into your affairs, unless it's one of their new fangled business records checks.

And even then they have no right to "poke around" in your private account unless you are banking business takings in it. Banking your personal drawings is NOT banking business takings and any account worth his or her salt would tell the to get lost.

Classic spreading of FUD

 

[InPrintImaging]

How do they know that you are in a "higher risk category" unless they've looked at the business records? And they can only look at the business records if they've already opened an enquiry into your affairs, unless it's one of their new fangled business records checks.

And even then they have no right to "poke around" in your private account unless you are banking business takings in it. Banking your personal drawings is NOT banking business takings and any account worth his or her salt would tell the to get lost.

Classic spreading of FUD

Read the first paragraph entitled "inspections, what HMRC can inspect......."

http://www.accountingweb.co.uk/topic/tax/inspector-calls-hmrc-s-new-extended-powers/402432

Specifically the bit "HMRC will treat unexplained deposits as taxable without evidence to the contrary". Now you may have a record that adequately explains the deposit, however if if they see business deposits going direct into the personal account, they may flag the individual as someone they want to keep an eye on.

It is well known that they profile individuals who they consider high risk. If they investigate an individual once and find something concerning, they are likely to do it again.

I used to work in practice and have seen that happen in real life.

 

[David Griffiths]

Whoosh.

And today's prize for completely missing the point goes to . . . .

 

[BustersDogs]

My accountant also told me to bank everything, then draw out what I need. After 3 years I finally felt brave enough to set up a small standing order to my personal account to cover my bills, and I take out £50 cash every time I bank, which is usually once a week.

I hadn't thought about moving some to my reserve account automatically as well, but I tend to try to keep that topped up just by paying into that account every now and then instead of my main one. I might look into that for next year, as I'm earning enough the past year or so to pay tax.

I have a free bank account, so don't have to pay to pay in or draw out, but if I walk in the branch they look at me as if I've got some sort of concealed weapon as I have to work through the cash points. It suits me, that's what I did when I was a taxi driver anyway. Easier to park outside the bank at 3am.

 

[richofwombwell]

I have everything go into my business account. Get an accounts package like xero and get familiar with it, It may take some time but if you know a little bit about your own bookkeeping it will save you alot of time and money (and also help you manage your money better)

I used to bank everything first then take drawings out and make note of what I had taken out ( IE reconciled the drawings on xero as owner drawings)

 

[johndon68]

You've replied to a six year old thread...

 

[richofwombwell]

Wow ripping those from the dead !

 

[BustersDogs]

Wow, that's my post from 6 years ago on the bottom. So pleased to say I now earn more than £50 a week from my business. :-D