Paying myself - do I do it like an employer or as drawings

[freefall]

Hi,

I am a sole trader and I need to pay myself a wage very soon. I have heard that you can pay yourself drawings and that it can fluctuate on a monthly basis depending on your personal needs.

But what happens about my NI?
Also, what about my PAYE?

The business is only set to make £50k in the first year if that helps anyone.

Do I need to do it all in the normal way or can I do it as drawings?

Any help is greatly appreciated.

John.

 

[businesssolutions]

Hi John

As you are a sole trader as opposed to a limited company, any cash you draw out of the business is treat as drawings. You are then assessed on the whole of the business profits at the end of your financial year (although, if you have chosen a year end other than 5th April your first taxable accounting period will be from commencement to the next 5th April).

As the proprietor of the business you cannot draw a wage under PAYE. Your tax and NI situation is dealt with when your tax return is produced at the end of the tax year.

I hope this clears this situation up a little for you.

Best Regards!

 

[Jayne]

Hi John,

In even simpler terms. If you need say £100 to go shopping, take it out of the biz and write drawings in your books. As long as you always write down what you have taken out of the biz, leave the rest to your accountant.

As for NI, you can pay this monthly direct debit and it's only about £10 ish.

Have you got an accountant, if not, try Joy on here, she'll sort your NI out.

Jayne

 

[Eagle]

As long as you always write down what you have taken out of the biz...

Any reason why? I only record business expenses.

 

[Jayne]

Ask Alpha for the techy stuff. My accountant says I have to record what I take out. I do it the old fashioned way with paper books too and also add in my expenses.

I don't understand it too much, just know how to fill them in or do as i'm told in other words :lol:

Jayne

 

[Eagle]

 
I take everything out! I keep things simple.

 

[Jayne]

There's nothing complicated about my books, a trained chimp could do them. I hate book work and do it as simple as possible.

I hate VAT more though :lol:

Jayne

 

[franbookkeeping&pay]

As long as you always write down what you have taken out of the biz...

Any reason why? I only record business expenses.

If you want your accountant to do a decent job of your books, you should put down the nature of everything that comes into and out of your business.

Though having said that, if they see 'gaps' in your expenditure, they will probably put it to drawings anyway.

 

[Joyous]

As long as you always write down what you have taken out of the biz...

Any reason why? I only record business expenses.

If you cash a cheque for £100 it’s useful to know if the £100 has simply been used to top up the petty cash float or if you’ve taken it out as drawings.

As Franbookkeeping says above any gaps in expenditure I automatically assume are drawings. It’s always quite amusing to see how clients suddenly sharpen up their bookkeeping habits when faced with a massive drawings figure in the first draft of their accounts.

Regards

Joy

 

[Eagle]

But what's wrong with drawings? It's my money and I'll do with it what I please...

 

[Jayne]

You can do what you like with it, as long as you tell them you've taken it.

Say me and Mark wanted to go on a bender and wanted say £200 to do so, i'd just write in my books.. Drawings £200, I don't tell them what I do with it :lol:

I do double entry book keeping and it just keeps my books balanced.

Jayne

 

[freefall]

thanks for all the help guys. I have just been looking into the NI on the HM Revenue and customs website and it looks like I will be paying my NI by direct debit so at least I can't forget about it.

When I inquired about setting up my business my local business manager advised me not to get an accountant until I was doing very well and had a lot of transactions. In a typical month I will have 2 or 3 sales of £2k-£4k each and my expenditure will be a fraction of that (well, apart from drawings haha)

So they advised me to do it myself and make sure my VAT return was on time and should I get bigger then I should consider an accountant.

 

[gordonthegofor]

accountants dont just do the books they also give tax advice that could mean paying HM Revenue and customs less of Your money

 

[Joyous]

But what's wrong with drawings? It's my money and I'll do with it what I please...

There’s nothing wrong with drawings, but they’re an appropriation of profits, which mean they get added back when calculating your taxable profits. Imagine you write a cheque for £500. If the £500 was for business expenditure rather than drawings your profits would be £500 lower. Lower profits mean lower a tax bill.

Regards

Joy