Can I pay myself for my start-up business?
You must pay yourself as the owner of your business, but first, you have to determine whether your business is making enough profit. If you are a sole trader, you can take the money as your drawings and record it along with other incomings and outgoings when you prepare your tax returns. To make yourself comfortable in drawing the money out need to implement sound bookkeeping systems to do the following:
- Check your budget & cash flow.
- Records of all your business expenses.
- Prepare the profit & loss account.
- Have you paid your employees?
- Have a business bank account.
You can check your budget and cash flow to ensure the income and the outgoings are not beyond the budgeted figures. It is vital to check that regularly to ensure you are not in deficit.
Then preparing your profit and loss account shows you the financial status of your company, whether it is doing well or in financial trouble.
When the cash flow shows a positive result also ensures that you have no financial trouble. Then even if the financial statements show a profit, your cash flow might not be suitable because when constructing the financial statements, adding the future receivables in the construction occurs. So, that will affect the cash flow. Therefore, making payments to the owner should be done after receiving a positive result in profitability, which might take a few months to pay yourself.
How much do you have to pay yourself?
It depends on the affordability, and the amount you take from the business should not affect the business. You know you have worked hard to set up and grow the business. You have to think about yourself and your family around you; if not, they will become frustrated and lose the family’s happiness. Therefore, you must pay yourself regularly when you make payments to others in your business.
Can I pay myself for my start-up business?
Then another point here is to keep the minimum payment to yourself when you see a good profit and keep the rest to put back into your business to grow it. But if the company is doing well, you need to reward yourself and your family for making them happy and supportive of you.
As a sole trader, you must be aware that you must file your tax return and will need the money. So, when you withdraw money for yourself from the business account transfer to your account, you have to allocate an amount monthly to pay your taxes.
How much should I put aside to pay my tax as a Sole Trader?
As a sole trader, you pay tax on your business’s profits through your annual Self-Assessment tax return. Your profit is your business’s income minus the allowable exclusive trader business expenses incurred.
These expenses must be purely for business and must not include any personal expenditures.
Isn’t all the money in the business mine?
When you’re a sole trader, there’s no legal difference between you and your business as far as the law is concerned. You receive the income and pay the expenses, including the tax liability you must pay as an individual. It can be tricky to manage because there can be a time lag between receiving income from your customers and delivering the personal tax you owe on your business profit. Therefore, you never depend on any receivables for your tax payments as you cannot delay. The best option is to save the money in your account to pay the tax on time.