Sole trade accounts

Affluenza

Hi everyone.

I've recently starting trading online as a sole trader with a registered business name and I have been keeping a full account of the incoming and outgoing cash. However I have not been doing a good job on recording the drawings of the business as I have yet to open a separate business account with my bank.

I would like to know, do I need to keep a record of drawings? I do not think I would need to as at the end of the day I will be taxed on the profit the business makes.

I look forward to reading your responses.

Thanks for looking.
Shane

Mrs OBumble

What's the nature of your drawings - is it paying yourself a salary? In that case I think you need to be keepiing payroll records for yourself. (I don't know if there is any exemption from operating PAYE for yourself.)

Affluenza

Mrs OBumble wrote: »

What's the nature of your drawings - is it paying yourself a salary? In that case I think you need to be keepiing payroll records for yourself. (I don't know if there is any exemption from operating PAYE for yourself.)

Hi, thanks for the reply.
Yes I guess you could call it a salary but it is not fixed so each week I withdraw a different amount of money. What would the payroll records be used for?

Thanks, Shane

Mr Clonfadda

Hi Shane

you are correct that you pay tax based on your profit and drawings are irrelevant to this figure. However if you are sharing a bank account you will need to account for everything, it needs to be clear what is business income and expenditure and what is personal. Drawings need to be recorded as tax inspectors would look at this.

pedroeibar1

+1 on Clonfadda’s post.

Shane you appear to be making the common mistake of misunderstanding a sole trader (ST).
You are the ST, the online activity does not have separate “legal status” in its own right. Any profit is yours/any loss is yours / all liabilities are yours. Some costs associated with the activity can be offset against your tax liability. Profit spent by you on yourself is part of your income and taxable and PRSI levied accordingly. For that reason it is important to keep a record of what you spend on yourself from the trading activity. It does not matter whether you take it in fivers or hundreds, weekly/monthly, just keep an account of it.

It usually is advisable to have a separate bank account e.g. Shane Bloggs t/a widgets so that it will be easy to identify and account for what is expenditure on the activity and what is being taken by you for yourself.

Mrs OBumble

Affluenza wrote: »

What would the payroll records be used for?

To make sure that you pay the correct amount of PAYE and PRSI.

dbran

Mrs OBumble wrote: »

To make sure that you pay the correct amount of PAYE and PRSI.

Hi Mrs Bumble

Sole traders do not pay PAYE/PRSI. They file tax returns and pay all their taxes through self assessment in Ocotber.

That being said, the level of drawings is a very important part of your books and records and you should to be able to record how it is made up. After all, it is effectively a measure of the amount of funds that you took out of the business and thus a measure of the extent of your lifestyle. If it is too high or too low it may draw unnecessary attention to you from the revenue.

dbran

Mrs OBumble

dbran wrote: »

Hi Mrs Bumble

Sole traders do not pay PAYE/PRSI. They file tax returns and pay all their taxes through self assessment in Ocotber.

That being said, the level of drawings is a very important part of your books and records and you should to be able to record how it is made up. After all, it is effectively a measure of the amount of funds that you took out of the business and thus a measure of the extent of your lifestyle. If it is too high or too low it may draw unnecessary attention to you from the revenue.

dbran

True - my bad, I should have said Income Tax and PRSI, rather than PAYE.

I'll wager that the OP thinks they don't pay tax on what they pay themself.

awinnicki

Mr Clonfadda wrote: »

Drawings need to be recorded as tax inspectors would look at this.

Hi Mr Clonfadda - technical question to above. In double entry ledger on what side should Drawings be located? Equity, liability? Say you withdraw drawings from business account (assets). How do you balance it so it has no effect on total profit? Thanks.

awinnicki

Mr Clonfadda wrote: »

Drawings need to be recorded as tax inspectors would look at this.

Hi Mr Clonfadda - technical question to above. In double entry ledger on what side should Drawings be located? Equity, liability? Say you withdraw drawings from business bank account (assets). How do you balance it so it has no effect on total profit? Thanks.

Mr Clonfadda

awinnicki wrote: »

Hi Mr Clonfadda - technical question to above. In double entry ledger on what side should Drawings be located? Equity, liability? Say you withdraw drawings from business bank account (assets). How do you balance it so it has no effect on total profit? Thanks.

Hi awinnicki

Traditionally Drawings would be located in the Balance sheet with the Financed by (owners Equity) section. Drawings is generally a debit and bank the credit.