01295 788104

Ivy Cottage, Bakers Lane. Tadmarton, Banbury, OX15 5TB

Search Archive



Drawings, profits and tax
23/06/2020

If you are self-employed – this article does not apply to the directors and shareholders of limited companies – there is often a mis-match between the amount you draw from your business and your tax bill.

When times are good profits may be high, but you may have decided to keep your personal drawing from the business to a modest amount. If drawings are lower than profits this would allow you to build up cash reserves in your business. 

Which is why self-employed business owners are frequently confused when their tax bills increase even though their personal drawings from the business have not increased.
Why is this?

The simple answer is that the self-employed are taxed on the profits their businesses generate and not the drawings they take from the business.

Fortunately, the opposite result also applies. When your business is making a loss, but you still need to draw on cash reserves to pay your own bills, you may have no tax to pay even though you are still taking drawings from your business.

Obviously, there is no long-term future in withdrawing funds from your business if you continue to make losses or profits lower than your drawings. This process will eventually exhaust your cash reserves and lead to insolvency.


 

Latest News

Redundancy process map

06/07/2020 – Acas has published a process map for employers who are having to consider making redundancies due to coronavirus. The … More...

The new reality

05/07/2020 – It may be some time before we could state with some certainty that it was back to business as usual; usual being the … More...

What is working capital?

05/07/2020 – Accountants would say that working capital is the difference between current assets and current liabilities. It is the … More...

 

Newsletter

With our newsletter, you automatically receive our latest news per e-mail and get access to the archive including advanced search options!

»Sign up for the newsletter
» Login

 

Cookie Policy

 

Reg no 04427669. Incorporated in England & Wales.

Copyright © 2020 Christopher Dean & Co