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Where Taxpayers and Advisers Meet

Can Self Employed pay themselves an income?

swandive
Posts: 11
Joined: Tue May 26, 2015 1:03 pm

Can Self Employed pay themselves an income?

Postby swandive » Mon Jan 21, 2019 12:20 pm

This is probably a silly question for those tax savvy here.

I have a business and a personal account and periodically transfer from the former to the latter to cover living expenses.

My business does not currently turnover a lot (~15k)

So in terms of the self assessment/Tax return for the business, how would these transfers of business earnings to my personal account be categorised?
Would they effectively be counted as salary for this sole trader (me)?

AmanSood
Posts: 215
Joined: Mon Jan 09, 2017 4:12 pm

Re: Can Self Employed pay themselves an income?

Postby AmanSood » Mon Jan 21, 2019 12:47 pm

Yes that would in effect be the case and this income would need to be declared on your self assessment tax reteurn.
Advising on UK employment, expatriate and personal taxes
aman.sood@e-taxconsulting.com.
+44 (0) 207 846 0155

swandive
Posts: 11
Joined: Tue May 26, 2015 1:03 pm

Re: Can Self Employed pay themselves an income?

Postby swandive » Mon Jan 21, 2019 1:56 pm

just reading further and it is said that these types of withdrawal from the business account to personal account are called 'drawings'

quote:
"Drawings are the Owner's Personal Income, all income of the business owner must be taxed no matter where it came from. As drawings have effectively already been taxed by not including them as an expense in the Profit and Loss A/C they are not then taxed as a separate source of personal income."

So no need to do a personal self assesment, as these drawings are my only source of personal income

Lambs
Posts: 1420
Joined: Wed Aug 06, 2008 3:15 pm

Re: Can Self Employed pay themselves an income?

Postby Lambs » Mon Jan 28, 2019 11:11 am

S,

If you have recognised the income to your business account already, you do NOT need to count it again when you transfer it as drawings to your personal funds. Drawings are not taxable income.

Perhaps A though that this was income, that was being credited directly to your personal account, but which you had not already recognised in your business account?

If (say) cash receipts from sales, etc., were being banked into your personal account, then they would still need to be recognised as business income. But if you have recognised the income already and this is effectively a transfer of your net profits to your personal funds, it is essentially ignored for tax purposes.

I hope this makes sense.

Kind regards,

Lambs

bd6759
Posts: 3106
Joined: Sat Feb 01, 2014 3:26 pm

Re: Can Self Employed pay themselves an income?

Postby bd6759 » Tue Jan 29, 2019 12:04 am

So no need to do a personal self assesment, as these drawings are my only source of personal income
How will you declare the profits of your business if not in your self assessment return?

AdamS93
Posts: 233
Joined: Tue Sep 26, 2017 6:28 pm

Re: Can Self Employed pay themselves an income?

Postby AdamS93 » Tue Jan 29, 2019 9:04 am

I’m sorry, but you’re well off the mark.

As a sole trader you get taxed on your profit. Your drawings are irrelevant, they are not taxable income and they are not an allowable expense

This is a fundamental principle, and if you struggle to get your head around this, there could be other mistakes you have made without knowing it.

You’ll be best advised to get an accountant, even if it is to check your submitted return due to the impending deadline approaching.


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