How to pay myself as a sole trader?

[Tom Badran]

Thanks wouter, i am not a limited company, i am a sole-trader which sounds
the same as yourself as a sole proprietorship. making withdrawls against my
equity account sounds best in this case.

Thanks very much for the help Wouter and Michael.

Tom

On Sat, Apr 26, 2008 at 6:35 AM, Wouter van Marle <
wouter at squirrel-systems.com> wrote:

>
> On 25 Apr 08, at 23:18, Tom Badran wrote:
>
>  I'm registered as a sole trader in the uk, and up till now all my income
> > has
> > just gone straight into my business account (which is also an account
> > under
> > assets in my gnucash accounts).
> >
>
> As I understand you are not a limited company, right?
> In that case normally you ARE the company. So profit for the company is
> income for you, for the tax-man that is. All liabilities of the company are
> your personal liabilities as well.
>
> This means "paying yourself" as in paying yourself a salary is impossible,
> you can however draw money from your company account, normally booked
> against an equity account. That can be the same equity account you used for
> your starting capital. You can see that this way your drawings from the
> company account do not change the company's profit. This in contrast to
> salary you may pay an employee - that is an expense.
>
> If however you own a limited company, then the company is a different
> entity (a legal person), and you may pay yourself a salary and dividends on
> the shares you hold. Both of course are optional. In that case you could
> become an employee of your own company, with all the tax consequences of
> such.
>
> In Hong Kong (presumably highly similar to UK as the laws here are based
> on UK laws), a sole proprietorship - I run one - is the same as you for the
> tax man. That means for income tax you write down the profits of your
> company as income, in addition to any other sources of income you may have.
> in Hong Kong you are then normally taxed as individual, not as business.
>
> And how to book income taxes paid... I still don't know really. I book it
> against equity, as the tax amount is based on your profit, and booking the
> tax as expense changes the profit on which it is based. That makes things a
> bit confusing to me. GnuCash doesn't allow for "profit before tax" and
> "profit after tax" as far as I know. Booking it against equity also makes
> sense to me when considering it is YOU that is being taxed, not the company.
> The company provides your income (the profit made from your trade), and that
> income is taxed. Just like in case you would receive a salary as employee.
>
> Wouter.
>
>
> > However i now need to transfer money from here to my personal account
> > (essentially paying myself as far as i can tell). Im not sure how best
> > to
> > represent this in gnucash however. Should i set myself as the only
> > employee
> > and pay myself like that, or should i set up another asset account
> > called
> > "personal" or something and just do direct transfers from
> > business->personal
> > every time i use money for non business transactions, or something else?
> >
> > Also, with regards to national insurance (and presumably income tax when
> > i
> > get round to doing that) i currently have that just going straight into
> > an
> > expense account under Expenses->Taxes->NI. I presume thats the best way
> > of
> > doing that as it was closest to the default set of business accoutns
> > gnucash
> > sets up, but if this would be considered wrong by an accountant, what
> > would
> > be best? I only ask as the tax is on me directly rather than the
> > business,
> > so im not 100% how i should represent that.
> >
> > Thanks for the help
> >
> > Tom
> >
> > --
> > Tom Badran
> > http://badrunner.net
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>


-- 
Tom Badran
http://badrunner.net