Paying yourself as a sole trader isn’t quite like paying an employee or being paid a wage by an employer.
A couple of important notes before we get started
- First any amount you pay yourself from your business is NOT a tax deductible expense.
- Effectively you are withdrawing profits from the business, any profit creates owners’ equity, when you pay yourself you are ‘drawing down’ the equity in the business.
Step 1 – Make the payment to yourself
This can be in any form, cash, bank transfer, personal use of stock or assets
Step 2 – Record the transaction
Depend on which accounting software you use, you may need to add some accounts to effectively deal with recording these withdrawals from the business. You need to first record profit and transfer it to retained earnings, then transfer to a idends payable accounts before recording an expense to pay yourself and remove the idend.
Recording these transactions effectively in your software can be a tricky exercise, but necessary to be able to reconcile your bank account accurately. Speak to your accountant or get in touch with me to find out more information at wryghtaccts@gmail.com.
* As with all our blog posts this information is provided for reference only. It is not intended to, nor should it, replace the advice of a registered tax accountant who can deal with your specific business circumstances.
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