Self Employement

[dylan]

What is the difference between drawing a salary from my business and retaining the profit within the business if I am a sole trader?

Because UKBA takes the gross if I draw a salary and net if I retain the profit within the business. Does this make any difference to a sole trader? At the end of the day I would keep all the profits in any case. Please help me to clear this confusion

[feedback556]

What is the difference between drawing a salary from my business and retaining the profit within the business if I am a sole trader?

Because UKBA takes the gross if I draw a salary and net if I retain the profit within the business. Does this make any difference to a sole trader? At the end of the day I would keep all the profits in any case. Please help me to clear this confusion

hi Gurus, i have the same query as above, can you kindly clarify- from the self employment, if I earn 4k, assuming 1k as expenses, would 3k be considered as earning? or would I need to further deduct the income tax/any other tax from the earning? appreciate the reply.Thanks.

[gaurav76.5]

ys 3k would be considered as earning...but do bear in the mind you would need to pay class 2NIC which is a higher amount..

Whilst with limited company concept you draw income as combination of salary(taxable) and dividend(non taxable)..

[scorpio_besal]

as a sole trader you can claim 3K as net profit, you would need to make sure you are up to date with NI class 2 payments.

At the end of the financial year, when you would file your return, you would need to pay 20% income tax on your NET Profit.

You may pay Class 4 National Insurance, but it depends on the annual profits of your self-employment. Since your income is below £7,605, you make no contributions. Above £7,605 and up to £42,475 you pay Class 4 at a rate of 9%. Above £42,475 you pay additional Class 4 contributions at a rate of 2%