Help with recording income for a self employed person

NickyW

I am studying Unit 18 and helping my friend do her accounts and I am learning a lot!! But can anyone help me? I understand that her self employed income needs to be kept separate from the income she gets from a paid job for the purposes of self assessment. What I don't get is how you would show that on an accounts package. In my case I use QB - so for self employed income - I have raised an invoice and then received payment accordingly. For income from her employer would I use the make deposit screen, received from the employer but then I don't know which account to then put it into?

I don't know whether it is clear or not but the reason I would have to put this income onto QB is because all the income goes into the same bank account and hence I would have to reconcile it.

Hope I am being clear. Any help would be greatly appreciated!!

Nicky

Monsoon

If you're keeping records on QB purely to track her self employed accounts, then enter her salary as a bank deposit from Drawings (it's her own money going into the account).

The employment income will go on the Employment Pages of the tax return. It shouldn't be confused in the self employed accounts as any kind of income.

NickyW

Thanks I knew you would be able to answer my question!
Just one question though, how would the accountant know that this was employment income because there will be other entries which show income coming into account which have been coded to drawings - ie refunds from shops - she uses her bank account for both private and business use.

Nicky

Monsoon

The employee will get a P60 from their employer, which they pass to their accountant.

The amount that goes into the bank is meaningless as far as tax is concerned anyway, as it will be net of tax and NI. The only figures the accountant needs as far as PAYE is concerned are on the P60 (and P11D if she gets one).

Keep the QB file simple and for the sole trade only (anything non business including salary from PAYE goes against drawings).

Monsoon

Also... she might want to think about having a separate account for business. This means she can keep business and personal separate, means you dont have to post every single transaction on her personal bank account, and that HMRC can't demand her personal bank accounts if they enquire into her sole trade affairs, only the business bank account.

NickyW

Yes she has said going forward she is going to keep a separate account.
Thank you once again.
Nicky

Monsoon

Good to hear, and you're welcome