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How do you distribute your profits?

Discussion in 'Money, Accounts & Finance' started by JermaineR8, Jul 19, 2012.

  1. JermaineR8

    JermaineR8

    Joined:
    Oct 18, 2009
    Messages:
    1,401
    I am interested to know how people handle their finances.

    If you are a sole trader, how do you distribute your profits? Ltds are welcome to give there input also

    To make it simple, if you made £1000 per month how would you distribute this?

    The yearly tax free allowance is £8,105.00, and monthly it is £675.42. So you would then save £324.58 per month for tax and NI. Then distribute the £675.42,

    In percentages, How much do you reinvest? How much do you take out as drawings? How much do you put towards any other costs or expenses?
  2. JermaineR8

    JermaineR8

    Joined:
    Oct 18, 2009
    Messages:
    1,401
    Made a mistake, tax and NI is roughly 32% of your earnings after the tax free allowance not 32% of total earnings.

    So do you save a smaller amount for these in advance from month 1 (£1,307.96/12 = £108.99), or save the correct amount from when you go over the allowance?

    Now assuming you are saving in advance, £108.99 per month this is 10.89% of profits,

    How do you distribute the remaining 89%?

    In percentages, How much do you reinvest? How much do you take out as drawings? How much do you put towards any other costs or expenses?



    Source: http://listentotaxman.com/index.php

    Gross Pay £12,000.00 £1,000.00 £230.77
    Tax free Allowances £8,105.00 £675.42 £155.87
    Total taxable £3,895.00 £324.58 £74.90
    [​IMG]Tax due £779.00 £64.92 £14.98
    National Insurance £528.96 £44.08 £10.17
    Total Deductions £1,307.96 £109.00 £25.15
    Net Wage £10,692.04 £891.00 £205.62
  3. Dean

    Dean

    Joined:
    May 22, 2008
    Messages:
    9,441
    I've always paid my wife a wage each month and then drawn enough extra for the monthly costs of living. The rest has just remained in the business accounts. I invest in new stock as and when I need it and expenses are paid from the balance. I've never really consciously thought about putting x amount by for tax but have had a decent balance for some time that more than covers my tax bill.

    I've just opened a business account with Barclays and they actually open 2 savings for you as well - one as a general savings acc and the other is specifically for putting by funds for the tax man. Thats then combined with the accounts package I use that calculates how much tax needs to be put by.
  4. UKbuyer1

    UKbuyer1

    Joined:
    Oct 30, 2009
    Messages:
    8,314
    Barclays are very good actually - and yes I use MyBusinessWorks as well, and the accounting software is great.
  5. Dean

    Dean

    Joined:
    May 22, 2008
    Messages:
    9,441
    I've signed up for MBW too. I'm going to use FreeAgent as my choice of accounting package. Its certainly worth the money for that alone but I also fully intend to make use of the cloud backup and have warned my wife she will be completing some of the training courses :D
  6. EvieG2017

    EvieG2017

    Joined:
    Nov 21, 2017
    Messages:
    1
    Very good analysis and I think most of it is correct, if you need an alternative resource to work out business taxation and NI deductions, I'd also recommend using this: ***************************** it's extremely useful and breaks everything down into comprehensive information. I've used it in the past to work out my own business allowances and tax deductions. Hope that's useful for you too :)
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