# Sole trader - paying myself and tax implications



## thebiz

HI

I have a business (Sole trader)
How do I pay myself - 
Do I write myself a cheque? 
If so how Do i record this in the company books?
Am I a supplier?

If the company has a profit of 1K
and I have paid myself 1K

How do i caclulate the tax due - 

Tax on 1k + 1k?


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## Yellow Belly

Best to pay yourself by cheque or bank credit as these will be traceable & visible for accounting purposes, and will satisfy Revenue. In essense they will provide clear evidence of what slary you drew from the businesss.

If you are a sole trader & not a company you will be taxed on your net profit, and not your drawings. Your drawings will be recorded in your capital account, but for the purpose of taxation, it is your net profit which is assessed.

Best to get yourself some good accountancy advice, as depending on your profitability, it may be more tax efficient to operate as a ltd company rather than a sole trader, and also gives you greater options with regard to pension provision etc.

No expert, but have made enough mistakes to have learned the hard way.


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## thebiz

OK Thanks,

So my drawings are not taxable? 
That doesnt seem right?


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## capall

thebiz said:


> OK Thanks,
> 
> So my drawings are not taxable?
> That doesnt seem right?


 
If you earn income of 50k ,epenses 2k,you will pay tax and PRSI on 48k

Whether that money is sitting in the bank or spent is irrelevant


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## thebiz

capall said:


> If you earn income of 50k ,epenses 2k,you will pay tax and PRSI on 48k
> 
> Whether that money is sitting in the bank or spent is irrelevant



Ok Got that.

So when I'm self accessing is there a separate form for
- calculating Tax on what I earned (paid myself) - my income tax
- calculating Tax  on what ever the business profit is


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## Yellow Belly

Your drawings are taken from net profit- it is the net profit figure which is taxed. If you were a ltd company your drawings would be taxed at personal rates of taxation while remaining net profit would be taxed at corporation tax rates. 

Example

If your net profit is €100k, and you have taken €50k in drawings. You are taxed on the €100k in the normal way, you are not taxed again on the drawings figure.

Yours accounts should look something like the following:

Sales/Income

less Cost of Sales i.e Purchases/Stocks etc

= Gross Profit

less Expenses i.e Wages to employeess, light, heat, telephone etc

= Net Profit

This net profit figure is then taxed. Your drawings figure will be apportion of this net profit otherwise you will have a negative capital account for the year.

Like I say- better that you take professional accountancy advice on this whole issue as you do not seem to make the distinction between company & sole trader.

Best of luck with it.


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## thebiz

Thanks very much - very clear, I'll run this by an accountant


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## Nige

You don't pay yourself when you are a sole trader as such.

All of your net profit is subject to tax and it is all taxed in the same way (whether you take it from the business bank account or not).


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## NickleIckle

Very clear explanations, thank you.

So.. if at the end of the year you want to work out what your drawings were (where personal & business accounts are all together and you are not paying yourself a wage as such).. if, for example, you have nothing left in your bank account.. your drawings are whatever is left of the profit after taking off expenses?!   

N


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## ButtermilkJa

As a sole trader the simplest way to work things out is to forget about 'drawings' as they are irrelevant. You should add up your sales (total invoicesout) and then subtract your total expenses/purchases (invoices in) and what's left is what you pay tax on.

You will also have to consider any allowances such as capital allowances for computers etc but basically you don't have a salary as a sole trader. You just pay tax on everything that's left over after expenses are deducted.


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## secman

Think of Drawings as a draw down on anticipated Profit. 

If you started off with say €1000 , and in the first year net profit was say €50,000. Drawings were €40,000. You pay tax and prsi on the adjusted for tax purposes profit which would be based on the €50,000. As some expenses are not tax deductible, like depreciation and entertainment. Others have to be slightly adjusted, say like motor exps, to account for a private element. At the end of the first year your business would be worth on paper €11,000 (€1,000 + €50,000 - €40,000). The tax paid in the following year would be treated as drawings in those accounts. 

Clear as mud !


Secman


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## esperanza2

Just been reading this thread. I am also a sole trader, but I withdraw money from my account when I need it. I record my accounts in an Excel Spreadsheet: Income and Expenditure, deducting the latter from INcome to get my Net Profit and this is what I pay 20% income tax rate on if I make less than €32K. It isn't that complicated. I haven't recorded my ''salary" anywhere, do I really need to as a sole trader? I thought this was only for limited companies.


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## the mai rose

Hi, i am also a sole trader for the past year, i do the same, i just take cash from the business account as i need it. Im only a small business, i work about 2 days a week, do you have any advice you could give me regarding doing my returns, do you pay for an accountant? My total income this year was approx 15,000 i just feel with having to pay the tax man and an accountant its a big chunk out of it. I also heard from someone that for the first year in business you do not pay tax, is there any truth in that?


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## Joe1234

the mai rose said:


> I also heard from someone that for the first year in business you do not pay tax, is there any truth in that?



No.  The closest to that, that I can think of is you are not subject to the usual revenue filing deadlines for the first year as a sole trader.  Tax does have to be paid.


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## budapest

It's not that difficult to file your own tax returns online as a sole trader, but if you're in doubt, then hire an accoutant for the first year to show you how it's done. You could also contact the revenue commissioners directly and ask them about your situation.

As was mentioned above, you cannot technically 'pay yourself' if you are a sole trader.  You are not separate from your business in this respect and your _net profit_ for the year is taxable.

_the_mai_rose,_ tax due for 2007 doesn't have to be paid until Autumn next year, but you should certainly make a return.  On such a low income, you'll more than likely find that the amount of tax you pay is quite low.  If you had income in 2006, then you should complete your return as soon as possible.  The official deadline is October 31st 2007 for income from last year (slightly later for online returns), but you'll need to allocate a few days to getting set up on their system - www.ros.ie


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## esperanza2

I made a net profit of about 3000 euro in 2006, so will have to pay just under 600 euro (tax rate of 20%).

I know you have to file the 2006 accounts before 31/10 but when do the taxes have to be paid?


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## Graham_07

esperanza2 said:


> I know you have to file the 2006 accounts before 31/10 but when do the taxes have to be paid?


 
31/10/2007 for paper or 15/11/07 for online filing & payment


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## z109

esperanza2 said:


> I made a net profit of about 3000 euro in 2006, so will have to pay just under 600 euro (tax rate of 20%).
> 
> I know you have to file the 2006 accounts before 31/10 but when do the taxes have to be paid?



Net of what? If this is all you have left after allowable expenses (which does not include any salary you 'pay' to yourself), then it is still subject to your tax credits if you have no other income.

So you may have no tax to pay.

Or, if you have other income, e.g. a PAYE job where you paid 42% in 2006, the self-employed income (the 3000 euro) will be subject to a tax rate of 42%.

Don't forget about class-S PRSI. If 3000 is all your income, you will not have to pay the 2% health levy, but you will have to pay 3% PRSI or €253, whichever is the higher (as far as I can see!).

Or is it rental income??


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## esperanza2

Graham_07 said:


> 31/10/2007 for paper or 15/11/07 for online filing & payment



Thanks for that!


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## esperanza2

yoganmahew said:


> Net of what? If this is all you have left after allowable expenses (which does not include any salary you 'pay' to yourself), then it is still subject to your tax credits if you have no other income.
> 
> So you may have no tax to pay.
> 
> Or, if you have other income, e.g. a PAYE job where you paid 42% in 2006, the self-employed income (the 3000 euro) will be subject to a tax rate of 42%.
> 
> Don't forget about class-S PRSI. If 3000 is all your income, you will not have to pay the 2% health levy, but you will have to pay 3% PRSI or €253, whichever is the higher (as far as I can see!).
> 
> Or is it rental income??



My net profit is my salary! It's basically what I have to spend once I've paid all my bills. It's what I get when I deduct my business expenditure (internet, voip credit, transport, etc.) from my business income.

Thanks for reminding me about the tax credits. In fact, I've tax free credits of €1900, which means I have no tax to pay! Great! €1900 minus €595 equals no tax. Does that mean some of this tax credit will be transferred to next year?

I haven't been paying any social insurance (complicated to sort out paperwise, as I worked in several countries before). Must get that sorted out, but I think I'll only have to pay €253.

I don't have any PAYE job.

Thanks for your tips.


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## esperanza2

the mai rose said:


> Hi, i am also a sole trader for the past year, i do the same, i just take cash from the business account as i need it. Im only a small business, i work about 2 days a week, do you have any advice you could give me regarding doing my returns, do you pay for an accountant? My total income this year was approx 15,000 i just feel with having to pay the tax man and an accountant its a big chunk out of it. I also heard from someone that for the first year in business you do not pay tax, is there any truth in that?



This is a great guide. It has some useful examples that illustrate the theory. I have to refer back to it quite often myself.
http://www.welfare.ie/publications/toiltrouble.pdf

BTW according to this guide:

"You can file your tax return "On-line" to the Revenue Commissioners, if you wish. In fact the Revenue
Commissioners encourage businesses to do this, and usually offer an extension of 2 to 3 weeks after
the October 31st deadline for "on-line" returns."


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## Megan

Can a sole trader pay his wife a wage and if so what are the tax issues with same?


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