Sole Trader - Capital Introduction

[Mick73]

Hi All - I will be leaving my employer in a few months to set up as a sole trader. I have a conservative business plan which includes a £20k introduction of capital from my savings. I then plan to take £1k drawings every month whilst revenue increases over time in line with the business plan. My question is this: Would I have to declare the £1k a month drawings on self assessment for tax purposes given it came from my savings (already taxed on interest)? Or, would I be better off just leaving it in my savings account and drawing it down from there, whilst revenue builds in the business and just declaring the profit on self assessment (after expenses)? All advice gratefully received!

 

[Tables Force]

You do not declare your drawings on your Tax Return.

As a sole trader you are taxed on your total profits (revenue less costs), whther or not you draw out any of these profits for personal use or leave them in the business is irrelevant.

 

[Mick73]

You do not declare your drawings on your Tax Return.

As a sole trader you are taxed on your total profits (revenue less costs), whther or not you draw out any of these profits for personal use or leave them in the business is irrelevant.

Thanks for your response and apologies for my lack of understanding. How would the capital investment be treated in the accounts? Clearly it has not been generated through revenue, therefore am I right to assume that it should be discounted from the P&L calculation for tax purposes? Apologies again for any naivety.

 

[HFE Signs]

Your capital investment isn't a profit or a loss so it has no impact on tax

 

[Scalloway]

Thanks for your response and apologies for my lack of understanding. How would the capital investment be treated in the accounts? Clearly it has not been generated through revenue, therefore am I right to assume that it should be discounted from the P&L calculation for tax purposes? Apologies again for any naivety.

The capital introduced is added to your Capital account on the Balance Sheet. Money taken out will be deducted from the Capital Account. Neither transaction affects the P&L or tax.