Sole trader Cash Injection

Kevin!

During more turbulent times, personal savings were injected into the business in order to keep it operating.

Now that the business is drawing a profit, how does one account for the withdrawal of the funds that were previously invested without being taxed on it?

thanks

dogsears

You describe yourself as a sole trade in the thread title. As a sole trader you're taxed on the profits of the business i.e broadly trading income less expenses, regardless of how much of those profits you draw. So you can draw out the savings you injected if you like without it making any difference to your income tax. Your accountant should be able to explain that to you by reference to your accounts as well.

If you're not a sole trader and you're actually operating through a company its different. Let us know.

Kevin!

I'm posting on behalf of a sole trader, going to make a call to the accountant next week but was seeing if boards could shed some light onto the situation prior to the visit.

Basically the question is, when withdrawing savings from the business account must this be notated in any particular way or does it only come into consideration when the end of year accounts are being drawn up?

dogsears wrote: »

You describe yourself as a sole trade in the thread title. As a sole trader you're taxed on the profits of the business i.e broadly trading income less expenses, regardless of how much of those profits you draw. So you can draw out the savings you injected if you like without it making any difference to your income tax. Your accountant should be able to explain that to you by reference to your accounts as well.

If you're not a sole trader and you're actually operating through a company its different. Let us know.

TiGeR KiNgS

Yes, you should flag the withdrawal as personal drawings by way of a note, so the accountant knows not to include it as a business expense item.

The accountant can directly put the drawings amount into the capital section of your accounts.