Anyone know if I just tag a HMRC NI Contribution Payment as (Tax Payment to HMRC) in QF?
Also what about tax payments to HMRC from a self assessment tax payment?
That all will be tagged as drawings
I donât understand why that would be drawings when the money is leaving my current account and going to HMRC and I am not getting a penny of it. So why would I tag it to my Proprietors Drawings Account?
Hi - I have been through all this as a sole traderâŚbasically the double entry requirements are Credit bank (reduction) and Debit the Proprietor or Partner Drawings account (3100). I know this may sound a bit strange but, the bottom line is that NI contributions are not an allowable expense and therefore can only be tagged as drawings. (i.e. below the taxable profit line on the balance sheet.
Nominal 3100 sits in the Capital and reserves part of the balance sheet and so the Debit entry is seen as decreasing the balance. (or an outgoing amount).
Hope that helps!
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So just to clarify. At this time I have the amount I paid HMRC in NI Contribution as a debit in my current account, and all I need to do is tag it to me Proprietor Drawings Account and nothing more?
Thatâs correct. As @gardenman_2803 said - itâs not an allowable business expense and therefore canât really be tagged as anything else.
I have tagged the debit for NI contribution in my current account to my Proprietor Drawings Account and now my Drawings account is showing a credit of this amount. Is this right, because it now looks like I have received the money when in fact I have not as it went straight to HMRC?
Yes, thatâs right. Nominal 3100 (proprietor and Partner Drawings) resides in the Capital and Reserves part of the balance sheet and in double-entry bookkeeping terms, a Credit entry will increase the balance and a Debit one will reduce it. Also, every posting requires two legs, a Debit and a credit. What you have done is to Credit the bank account - an asset account - which reduces the balance) and Debit 3100 (also a reduction). The same postings would happen if, say, you went out for a meal with your partner (or a friend!) - this is another eg of drawings. The taxable net profit is what you would report to hmrc on your self-assessment return, however, the debit balance on 3100 that is carried down would be deducted off the taxable Net profit to provide figure for net profit retained.
I do not understand what you mean by double-entry. I only see one entry on my current account, which is the debit from where I paid HMRC and one entry on the Proprietor Drawings Account, where I tagged the payment to it, which credits the Proprietor Drawings Account. Is this right?
Yes. You have done right. For every transaction, there are two book entries (for the same value) - one is a debit and the other is the creditâŚhence the term âdouble entryâ. Donât forget though, in this case, a payment from your bank account is a Credit leg (reduction of an asset account) and the opposite entry is the Debit leg in account 3100 (Proprietor and Partner Drawings). The debit on this account is a reduction too.
You say, âa payment from your bank account is a Credit leg (reduction of an asset account)â, but I though a payment from an account was a debit as the money is debited out of the account so why do you refer to it as a credit?
Same for when you say, âthe opposite entry is the Debit leg in account 3100 (Proprietor and Partner Drawings)â as this shows as money into my Proprietors Drawings Account and I thought money in was a credit.
What do you mean by, âThe debit on this account is a reduction tooâ?
It all seems back to front how you have explained it.
Sorry for all the questions, but I am really trying to get my head around this.
I can fully understand your confusion here, as it took me a while to grasp this. On face value it would appear to be the wrong way round as we are all used to the two columns on our bank statements where the left hand side is for withdrawals (debits) and the right hand side is for receipts (credits). In double entry, the rules are mostly the opposite to this, in that:
Any asset account (bank accounts, cash, plant & equipment etc) is INCREASED with a debit entry and is REDUCED with a credit entry
Any liability account (creditors/suppliers) is INCREASED with a credit entry and is REDUCED with a debit entry.
A Capital account works in the same way as for a liability account.
Hope this helps youâŚand others!
So just to make sure I have this right. I simply tag NI contribution and Income Tax payments from my SA Tax return that show as debits on my current account to mt Proprietors Drawings Account and nothing more at all. The software then dos the rest?
The bank accounts within Quickfile are set out exactly like the statement from any high street bank, in that outgoings are on the left-hand side (debits) and incomings are on the right-hand side (credits). Are you confident in uploading statement extracts from your high street bank account directly into QF? All payments (when uploaded into QF) will appear in the money out column as untagged. Just click on the tag me! Button against an NI payment and select âsomething else not on this listâ. Scroll through the âPost to Accountâ drop-down of nominals until you find 3100 (proprietor or Partner Drawings). Select this and add some meaningful description if you wish. Click save. All done â the double-entry entries have been made and it is fully tagged.
I have looked at tagging it, but when I look at my balance sheet it shows my Proprietors Drawing Account as nominal code 1202 under liabilities and not 3100. Is that right?
If I do it the way you said then I do see 3100 in the list and I also see my actual Proprietors Drawing Account 1202 that I see when I click the Banking tab and look at all my accounts. If I tag it to 3100 I donât see it in my list of accounts, but if I tag it to my actual Proprietors Drawings Account, it affects the account balance of my Proprietors Drawing Account 1202. Could it be my Proprietors Drawings Account is not set up right?
Any balance on account 1202 (proprietors Drawings Account) is a current liability on the balance sheet. NI contributions and other âprivateâ spends (e.g. taking partner out for a meal on the business) are both classed as non-allowable for tax purposes and must be seen as drawings. All such outgoings are, according to the text books, to be deducted from the net profits of the business. As explained in an earlier thread, nominal 3100 (Proprietor or Partner Drawings) is positioned in the Capital & Reserves (financed by:) section of the balance sheet and functions correctly to reflect this deduction from net profit so I believe it is the right nominal to use. If you drill into account 1202 I guess you will see a credit balance. To switch it to 3100, just create a journal to Debit 1202 and Credit 3100 (to clear 1202 down to zero).
So should I continue to tag my NI contribution, SA tax payments and proprietors drawings (payments to myself) to the 1202 (Proprietors Drawings Account) and then journal them to 3100 (Proprietor or Partner Drawings)?
If this is the case then why wouldnât I just tag these types of payments straight to 3100 (Proprietor or Partner Drawings) instead of tagging to 1202 (Proprietors Drawings Account) and having to journal it?
Yes, as you say in your second paragraph, just tag NI payments from your current account directly to 3100. This does away with the need for a journal. In double-entry terms, the credit leg is the outgoing from your bank and the debit leg affects account 3100 (also an outgoing). Hope that is clear now.
So just to clarify. I should tag all payments includeing, NI contributions, SA Tax Payments to HMRC, personal drawings, personal purchases and flat rate use of home and vehicle expenses to 3100 and just not use my 1202 (Proprietors Drawings Account)?
To clarify I am a sole trader.
Iâm also confused after reading this thread. Also a sole trader
I tagged some money as drawings, which went to code 1202 Proprietor drawings account. This balance is now showing on my balance sheet as an asset, along with paypal balance, current account balance. Should I not just leave it there?
Also, how can I tag drawings straight to 3100? (if thatâs what I need to do)