Reimbursing myself start up costs - sole trader

StevieNicksFan

Hi all,

I just started up as a sole trader through a social welfare scheme a few months ago. There were a lot of start up costs and still are, which are/were funded through social welfare money and loans from family. My question is, can I refund myself for these expenses from the money I start to make from the business? I have kept all receipts, so if I do withdraw from my business a/c, (as a reimbursement) the receipts will correlate to the expenses paid. Is this ok to do? Just started to make money but I want to pay back what I owe from loans and what I technically owe myself. Any help appreciated! Thanks

barneystinson

Yeah, you need to sit down with someone who understands how tax / accounts for sole traders work - it always scares me when I see people asking these questions months after they've started up in business.

The basic thing you need to get your head around for sole trader taxation is this - AS A SOLE TRADER YOU ARE TAXED ON THE PROFIT OF THE BUSINESS. Wages you pay yourself, or reimbursing yourself for money you've put into the business, have no effect on the profit/loss of the business. The business's money is your money.

Simple example - your parents give you a loan of €10k to start a business - you use the €10k to buy stock of widgets, and you sell the widgets for €20k.

Your profit is €10k. This is what you pay income tax on.

Whether you leave the €20k in the bank, or use it all to buy more widgets, or whether you take €10k for yourself and €10k to give back to your parents, or a mixture of the above, is COMPLETELY IRRELEVANT to how much profit the business has made...

StevieNicksFan

barneystinson wrote: »

Yeah, you need to sit down with someone who understands how tax / accounts for sole traders work - it always scares me when I see people asking these questions months after they've started up in business.

The basic thing you need to get your head around for sole trader taxation is this - AS A SOLE TRADER YOU ARE TAXED ON THE PROFIT OF THE BUSINESS. Wages you pay yourself, or reimbursing yourself for money you've put into the business, have no effect on the profit/loss of the business. The business's money is your money.

Simple example - your parents give you a loan of €10k to start a business - you use the €10k to buy stock of widgets, and you sell the widgets for €20k.

Your profit is €10k. This is what you pay income tax on.

Whether you leave the €20k in the bank, or use it all to buy more widgets, or whether you take €10k for yourself and €10k to give back to your parents, or a mixture of the above, is COMPLETELY IRRELEVANT to how much profit the business has made...

Thanks for your reply. I have an appointment with social welfare rep who is going to go through all with me next week but I just want to get a headstart. When I say started as a sole trader, I registered with CRO a few months ago but only started trading in Jan - so bear with me it's all a learning curve! How then do I account for that withdrawal in my books? As it is one lump sum covering many different expenses already paid, do I just put it down as 'expenses' and produce receipts covering the total amount? Sorry for troubling you with questions, just want to get a better understanding before the meeting.

DubTony

Great answer Barney. What many fail to realise when trading as a sole trader is that they are the business and so are automatically personally responsible for all taxes (at personal tax rates) and debts.