New (trial) user: sole trader plus PAYE income

Question asked by Laurie Stras 8 years ago

Hello - I'm new here, and need some advice on some basics. Up to this year I've been managing things on an enormous spreadsheet, packing receipts and statements off to an accountant but now want to be a bit more organised.

I have a PAYE income from a university - so a salary, from which tax, NI, pension, and salary sacrifice items are deducted at source. I also have self-employed income from royalties, other universities, appearance fees, etc. Sometimes tax is deducted at source from these, sometimes not.

My business outgoings include the usual business expenses and professional fees, plus professional association subscriptions, research materials etc.

I have managed for nearly twenty-five years with only a current account and a savings account, both in my name. I have simplified recording my outgoings by using two different credit cards for purchases (Visa for business, MasterCard for personal) but I have both personal and business income and expenditure coming straight out of my current account. For instance, both the pet insurance and my union subs are on direct debits... I also pay into an additional personal pension .

I have two basic questions: 1) how do I explain personal expenditure and cash withdrawals? I thought I could set up a Personal account code (or a set of codes) which I then ignore when I come to year end. But should I be using Drawings instead? When I set up these up, what Category should I put them under? 2) how do I record tax and other deductions taken at source - whether by my main employer or by others?

Many thanks in advance

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2 Replies

Hi Laurie - although it's risky, from an HMRC investigation point of view, to have a mix of business and personal items in one bank account, if you've not had a problem in 25 years, you're clearly at low risk!

Yes, all personal ins/outs should go though a Drawings account, so that they are completely ignored for business purposes, so just set up a "Drawings" account under the Drawings type marking it as available to both purchases & sales.

Revenue accounts subject to tax deduction (witholding tax) have to be switched on first in Toggle features, so go to: Settings > Configure system > Toggle features and look for the "witholding tax" on the Accounting page.

Then go and set up a new Revenue account to record this income and you'll now notice two extra boxes WHT rate and WHT account. The rate is the % of tax that will be deducted and the account is where CB records the tax deduction. As, for a self employed person, your tax bills are personal you should pick the drawings account or, in order to keep it separated out from other personal transactions, you might first want to set up a new "Tax deducted" account under Drawings type.

So if you record this income from the bank statement and put it to the new revenue account CB will automatically gross up the income and put the tax to the drawings account. If, on the other hand, you raise an invoice to the customer, then enter the gross income to the revenue account and, when the invoice is created CB will automatically deduct the tax and put it to the new account.

This is fne if you have a standard rate of tax deduction but if not, you may prefer to ignore the toggle feature and use two lines per sales item, the positive sum for the fee and a negative sum for the tax.

Hope that helps and can I suggest you get your accountant involved by inviting them in to your books to see what you've done and they can then keep an eye on your books as the year progresses to make sure that they are clean and tidy when it comes to the year end. This may not be hugely important now, but in a couple of years when HMRC are planning to get you to submit your figures on a quarterly basis, it will be essential.

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Best answer
8 years ago

Thank you very much - that's extremely helpful.

8 years ago

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