Tax

lgarsidelgarside Well-KnownRegistered Posts: 122
Just a quick question becuase I have a blank mind!

If a sole trader paid tax of say 2,000 during the year for the previous year, would this be added back in when calculating the current year's tax liability as drawings, or is it a tax deductible expense?

Comments

  • T.C.T.C. Experienced Mentor Registered, Tutor Posts: 1,448
    Not quite sure what you are asking, but tax is not a deductable expense!
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    I'm not sure what you're asking either, it's not usual to pay tax for the previous year, normally you make payments on account for the current/following year. Tax payments should go to drawings as they are not an allowable expense.
  • CasparCaspar New Member Registered Posts: 12
    Hi Igarside

    I think I know what you are trying to ask about this.

    If I explain how the sole trader accounts work, this may help you understand about the £2,000.

    Any drawings taken out of the company bank account by a sole trader, does not affect the profit & loss sheet in any way. As you know, tax is calculated on profit shown at the end of the year.

    If the sole trader then paid their personal tax from this company account, it only affects the bank balance and balance sheet, and therefore not the profit.

    Therefore you would forget about this payment, made from the business for a personal expense, when calculating tax due. As his taking the funds out has had no effect on his profit or loss throughout the year.

    When you get to the next year, and calculate his profit, you will just work out his tax payable again. Without even thinking about this £2,000 that he paid last year.

    If I could mention, that I think perhaps you could benefit from reading up again on how the P&L and the Balance sheet work. As it sounds like you are new to this sort of thing, and this would help to give you a little more confidence in what you are doing, and avoid mistakes.
    Regards
    Caspar
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