HMRC - TAX CREDITS - SELF EMPLOYED

ben.a

Can someone help please? Why do HMRC want to know your self-employed sole trader profits when calculating Tax Credits rather than the amount of drawings a person will take each month? A friend is looking to leave their current job, they are currently in employed, to become a sole-trader. To do this they need to know the tax credits they will be entitled to (if any, hopefully they will be successful enough not to need credits). They are looking to take a set amount in drawings each month and leave the remainder in the business to enable the business to grow (buy more advance equipment etc), but HRMC do not seem to be considering the growth factor. Is there something my friend and I are missing?

RyanMIP

Have you explained your view to HMRC?

MarieNoelle

Sole traders are taxed on their profits not on their drawings for the year.
Investments in new equipment will decrease the taxable profits by way of capital allowances.
Your friend may consider starting up a limited company if they want more flexibility in the way they extract profits from their business.

ben.a

RyanMIP - Not yet. I wanted some feedback first just to see if I was missing something. My friend was using the tax credits calculator which only gives you the option to submit the profits for the company for the previous tax year.

MarieNoelle- This sounds like a goods idea. Thank you for your response.

Tax credits is such a minefield!!

MarieNoelle

Just to add you may want to have this thread moved to another category (you are in the feedback for AAT category)


And thanks for the LOL Ryan - this is fun!