Hi there,
I'm a bit confused as to how to log NI contributions (I'm a sole trader, so no employees). I've always thought that NI contributions are not really a business expense, but a personal expense, so should the relevant amount be taken out of the business account as a drawing, put into a personal account and paid from there? If I pay NI from my business bank account how is that then treated in terms of tax? Or is it deductable as a business expense?
Thanks in advance,
Adam
Hi Adam,
As far as HM Revenue and Customs is concerned, national insurance and income tax are not business expenses, so strictly speaking these payments are a personal drawing from the business. To record it this way in Solar Accounts you would allocate these payments to the 'Owner's Drawings and Personal Use Account'.
However, many self-emplyed people like to see their 'after-tax' profit, so they allocate payments to the Tax Expense account. In this case the the Tax Expense should be excluded from the profit calculation when preparing the annual self-assessment return.
Perhaps this treatment is just too confusing, and we should say that tax and NI payments made by a self-employed individual be treated as a personal drawing? We will look into this problem further.
Regards,
Hi Mark,
Thanks (as ever!) for your prompt reply. In terms of Solar Accounts, I guess that if a company has employees, NI could be accounted for as a business expense (as per your FAQs) - I think for me (no employees) I may just take it out as a drawing (or simply pay it from a personal account). If you look into this and get a more definitive answer, let me know!
Thanks again,
Adam
Hi Adam,
After more investigation we've changed our help topics to match the legal status of income tax and NI contributions - we now recommend that self-employed people treat their tax and NI paymentsas a personal expense.
If you pay your personal tax and NI from a business account, record it as a non-business payment (ie. drawings from the business) as described here:
http://www.solaraccounts.co.uk/help/how-to-record-non-business-payments.php
For PAYE and NI payments made by employees, see this help topic:
http://www.solaraccounts.co.uk/help/how-to-record-paye-and-ni-contributions.php
Regards,
