Drawings or Wages

Sari Sari

Hi,

I am attempting to do my own accounts this year, and I would like to ask some advise regarding wages, and drawings.

I own a shop, and my wife and I are the only two people working within the business.

I pay her a wage of £100 per week, and take money for myself only as and when required.

How would I treat my takings from the business.?

Would I put the first £100 for myself as wages, then any extra as drawings, or would it all be drawings?

Thanks

Sean

Anne Boleyn

Wages or drawings

Hi Sean

You don't say whether you are a sole trader or you and your wife run this business as a partnership or if you have incorporated and are Director's.

If you are a sole trader then any money you take out of the business is classed as drawings. If your wife works in your business be careful how much you pay her as you might need to register as an employer and run PAYE, I believe at the moment the lower limit is £95 a week before you have to registeras an employer. Your wife's wages would be in the accounts as an expense of the business and deductible from the turnover.

If you are both running the business as a partnership, any money you both take out of the business is classed as drawings. Not an expense. With both sole traders and partnerships you are taxed on the adjusted net profit of the business not on your drawings.

If you are have incorporated then the company pays tax on it's adjusted profits and the Director(s) pay tax on what they have taken out of the company.

If you provide a little more detail you may recieve a better response.

I would recommend speaking to an accountant if only to ensure you are keeping the correct records. It can be a false economy to try and save money by doing your own accounts and make mistakes that could be costly. Most accountants will give an hour free to discuss any matters.