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Brownem


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A little reassurance if I may...............
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Hello,

I am new to all of this and just completing the accounts for a new client who claims 45p/mile, no other costs towards the upkeep of his vehicle. Can I just clarify that the correct accounting procedure would be dr motor expense and cr drawings (he is a sole trade)?

Also, would the same principle apply to use of home office, dr expense account and credit drawings?

Apologies if I'm sounding a bit thick, I just like to be 100% sure before committing to anything.

Thanks in advance for you help.



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HendyPhilhendy


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I would usually credit Capital Introduced; however, it does not really matter in the grand scheme of things.

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Brownem


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Thank you for your response. May I ask if there is a particular reason for using cap int instead of drawings? My thinking was, as they are legitimate expenses but no physical money would be moved around, then using drawings would reduce the tax liability? Is that the wrong thought process?

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Leger


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Hi Emily

Think of it as the client taking £100 out and putting £20 back in, but either way the net result is the same.

Drawings £100 Capital introduced £20 leaves £80 in the capital account.

Drawings £100 credit drawings £20  Net drawings £80

 

Makes no difference to the profit, he will be taxed on the £80 in both instances.



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Brownem


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Thanks for clarifying that. I do have a habit of over complicating everything.

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