View Full Version : VAT help and self assessment

19-04-2010, 03:36 PM

I am a new sole trading business (started in december) and after reading loads on self employment and sole trading i still have a couple of questions, which i hope someone can answer.

1. I want to know if the VAT that i have paid on importing goods is an expense that i can deduct from my net-profit before tax is calculated. I have read a lot about VAT and don't quite get whether it can be seen as an expense or if it was meant to be regained back from sales (with vat included) and therefore is no longer an expense.

I don't earn much at the moment so do not need to register vat.

2. Also; is self assessment based on what i have paid myself or what my profit is. i.e. am i assessing my personal income or the end of year profit of my business. If it is the latter HMR are basically not allowing for the business to keep money for investment in the next finacial year, but are assuming that you will use the money personaly. Should business profit gain not be seen as seperate from personal income?

Thank you

James Smith
19-04-2010, 06:46 PM

on (1) if you are not VAT registered, VAT is just another cost added to the price you pay for goods and services. It is an expense for income tax purposes but that's about it. You certainly must not charge VAT when you are not VAT registered, and you dont claim it back either.

On (2) if you are a sole trader you are taxed on what the business earns as a taxable profit. What you pay yourself is not relevant. All (profitable) business pay tax, so you need to factor this in whether or not you think its fair.

Shameful plug but you might find my book useful to cover the groundwork on these sorts of issues, it goes over self assessment responsibilities and understanding about VAT as well as bookkeeping and other practical issues.


21-04-2010, 12:24 PM
Thank you for the reply.

Just one more question.

Is my salary counted as an expense? and do i have to assess myself for both business tax and income tax or are both counted as the same thing when i complete my self assessment form in which case my salary would form part of the business profit.

Thank you

James Smith
21-04-2010, 12:43 PM

there is no distinction between "the business" and "the individual" for tax purposes for a sole trader.

You are simply taxed (income tax plus NI) on the profits of the business regardless of the amounts taken out.

There is no "business tax" to pay.

There is also no 'salary' (we actually call the money you take as a 'drawing') and these drawings are not tax deductible.

I think you might be getting confused by looking at things to do with limited companies which are quite different.


Mark Mcleod
29-04-2010, 08:27 PM
In a nut shell - your "salary" is added back into your profits, therefore increasing profit and you are taxed on this amount.