Hi
Sorry if this sounds like a stupid question but...
I was wondering if Sole traders budget each month towards their end of year tax bill (income tax) and if so how is this accounted for? I was thinking of maybe budgeting roughly 30% on any drawings that are taken from the business and putting a monthly accrual in for the total amount. Does this sound logical.
Thanks for any help!!!
Sorry, no. Remember sole traders are taxed on profits and not on drawings. If you wanted a very rough calculation for tax and class 4 ni then 30% is as good as any.
Hi i normally work on 29% of all money earned and put that two one side. I work in a low cost base so the tax saved by the bit of expenses i have is a nice bonus at the year end.
I think not budgeting is kidding yourself that you are earning more than you are and you will get in trouble. Only when my tax bill was under £2,000 and i had decent employment income as well would i not bother and get it collected from my tax code.
Nick
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Nick
Nick Craggs FMAAT ACA AAT Distance Learning Manager
"Hi i normally work on 29% of all money earned and put that two one side. I work in a low cost base so the tax saved by the bit of expenses i have is a nice bonus at the year end."
That's pretty much what I suggest people do - throw a percentage of their turnover into a savings account they can use to pay the tax bill. However, that advice doesn't just go to sole traders, and the amount might be higher to cover VAT as well.
The amount that will inevitably be left over (and the two or three pence interest they might get at the rates these days) can be seen as a nice little bonus, but IMO it's better to keep it until it's really needed, rather than just go "Woo! Bonus! SPEND! SPEND! SPEND!"
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
I had one that also thought of the equity in her house in the same manner!
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
