As a sole trader how do I pay myself from my business?
As a sole trader, you’re not directly employed and do not receive a salary or wage in the traditional sense. You are paid based on ‘drawings’ from your business. You need to pay tax on these drawings.
How do I record drawings I make from my business in my software?
You should record 'drawings' you make from your business within your Crunch Freeagent software by following these steps. Some screenshots are also provided below to assist you.
To take out a drawing on your account:
Navigate to Banking > Bank Account > More > Add Transaction.
From here select the Type > Money Out > Money Paid to User.
Enter the date and the amount you wish to pay to yourself and select the Reason for the withdrawal as ‘Drawings’ from the drop-down menu.
How much should I put aside to pay my tax as a Sole Trader?
As a Sole Trader, you’re taxed on the profits that your business makes through your annual Self Assessment tax return. Essentially, your profit is the income that your business receives, minus the allowable sole trader business expenses incurred.
These expenses must be purely for business, and must not include any personal expenditure.Obviously, the higher the amount of profit you report, the more you will earn and the greater your tax liability will be. We've written an article explaining how much you should put aside to settle your Income Tax and National Insurance liabilities each year.
How is my profit reported to HMRC and how do I pay?
Your profits are reported to HMRC each tax year via your Self Assessment Tax Return. Your income tax and NICs (National Insurance Contributions) calculation will highlight how much you’ll be paying on your final tax bill. Your Self Assessment must be filed and all taxes you owe must be paid before the 31st January, otherwise, HMRC will fine you, with penalties starting from £100. You can do this within your Crunch FreeAgent account.
If your tax bill is more than £1,000 for the year, you’ll be required to make a Payment on Account. This is HMRC’s way of ensuring tax is paid regularly and it goes towards your next Self Assessment. There are two payments made towards the Payment on Account, the first must be made by 31st January and the second payment is on or before the 31st July each year.
If you believe that you won’t have as much sole trade profit in the next tax year, please let us know, as we could potentially reduce your Payment on Account to HMRC.