Hello I wonder if Glen and the team can assist me once again,
It is that time of year for Tax Returns. As I printed off my Profit & Loss Report from Quickfile I noticed an apparent error in the amount of money I had paid myself as a SOLE TRADER for Wages/Salary.
When looking at the P&L report I can clearly see that personal expenses I have accrued on behalf of the business (and entered into the Proprietor Drawings Account) are being marked up as ‘Salary payment’.
When I go to investigate this by date and amount I can see that the payment is an Expenses payment and is marked up as "Salary payment to ‘My Name’ " please see below as an example:
Salary payment to ‘My Name’ = £522.64 – 10/07/2015
Net Wages Paid (Movement to P&L)
surely this is wrong?
What am I doing wrong and how can I correct it?
You’re right - with a sole trader business, there’s no legal separation between the proprietor and the business itself, so any money you take out personally is classed as drawings rather than a salary.
The dates in the nominal report would usually correspond with the dates from your bank statement on QuickFile. You would need to go through your bank statement and untag those transactions and tag them as a transfer to the drawings account, either by tagging it as a direct transfer, like this:
Or by using the salary and drawings option:
and then ensuring ‘Proprietor Drawings’ has been selected, complete the name box and save:
Both of the above actually do the same, it’s just however you wish to treat it. If on occasions you’ve not selected ‘Proprietor Drawings’, it would tag it as a salary and show up on your P&L, as you’ve seen. I suspect this may have been what’s happened in your case.
As you’re completing your year end, you may find this post useful too.
Hope that helps!
Thank you very much for your helpful answer I will go and look at it now…
Might I ask what is the difference between Salary and Wage to the HMRC? or should I add a note being a total non-accountant like (wage aka drawings)??
For sole traders any money you take will always be a drawing, but wages or salaries will be paid to anyone they employee under the HMRC PAYE scheme… We add the drawings option under salary because many sole traders consider the money they take as a wage/salary.
You may find this page useful for definitions:
And thank you for your timely reply. I have read that and understand it - I also realise now that I neither get a wage or a salary any more as I just transfer money to my personal account when there is some in there!
On the other matter:
I am just looking to amend the 3 incidences I have of Expenses being marked up as ‘Salary paid to…’ as you so kindly suggested, however I cannot find either of the options you have suggested. Let me expand further:
3 years ago when I set up as a sole trader the thing I feared most was (and still is) the accounting as I am not good with figures. My brain just cannot take it in. Quickfile was the perfect companion for me as still is. The biggest hiccup I have is the expenses as I just cannot comprehend this Proprietor Drawings Account and how it works. However, I was instructed by the ever helpful Glen and team to create my expenses in the Proprietor Drawings Account by adding a new Transaction and that is how I have been doing it although I don’t understand it and my actual bank balance and the amount Quick file tells me I have do not add up anymore - the difference is the amount in the Proprietor Drawings Account.
So on this matter of “Salary paid to…” in the P&L Statement:
I keep a spreadsheet with my expenses on it. Then say for my Mileage expenses:
I go to Quickfile/Purchases/New Purchase - I created each Expenses individually as a New Purchase (Transaction)
I select ‘Expenses: Approved Mileage’ from the supplier
i: the Category comes up automatically as "Travelling"
ii: I enter my Description and Amount
iii. I leave the Paid Box UNCHECKED! as I haven’t paid or transferred it into my personal account
iv. Then choose to Transfer it from my Work Account to the Proprietor Drawings Account.
When ALL my Expenses have been entered line by line and I am ready to pay them all into my actual personal account I go to my Proprietor Drawings Account / Search for all UNPAID highlight each of the expenses : then
5: I add them all up on a calculator so I have a total amount of expenses to be transferred From my Real Work Bank Account into my REAL Personal Bank Account,
i: then I select PAY on each line. And
ii: This then appears to generate the payment in my Work Bank Account - but remains unTagged in Purchases
I am probably doing this all wrong and your advice would be appreciated.
Unfortunately I did not understand what was said in that post at all and it just confuses me even more. Its the terminology, it is just a different language to what I use and understand and I simply cannot comprehend it.
Thanks for trying to help me anyway.
Basically, at year end you need to create a journal so what you take out of the business and what you put is in accurately represented on your balance sheet. I can’t recall if HMRC asks you to upload a copy of this, but I believe they ask for you information such as drawings and capital introduced as part of the self assessment form.
Do you mean the options I highlighted above? These images relate to the bank tagging options (when you click ‘Tag Me!’ on your bank statement page). When you tag a payment you’ll be presented with a list (payment to a supplier, refund to a custom, salary of other drawings etc.). Selecting the highlighted option will show you the other ones.
I’ll try and keep this as simple as possible for you.
The account (we’ll call it the PDA) is used mainly for tracking expenses. Think of it as a snapshot of your own personal bank account, but only in relation to the business. So if you use your personal bank account and spend £100 on shopping, £50 on fuel and £25 for ink for the business, the PDA on QuickFile would only show the £25 as this is the only expense relating to the business.
The post I linked to above just moves the balance to different nominal accounts to make sure they show up on your balance sheet correctly. However, your accountant should be able to either do it for you, or help sort this out to save you a headache!
With the recording expenses, we have guides on this in our knowledgebase. Generally, we can offer help and guidance on how to use QuickFile, but we can’t advise on particular methods or whether something is correct or incorrect in the way it’s done (I’m not an accountant or bookkeeper). I think you may be better off running this past a bookkeeper or accountant to ensure it’s done correctly.
I’m happy to point you in the direction of a number of these if you haven’t gone one already. Please let me know.
Many Thanks for a clear and concise breakdown of simple answers.
I have now found where you were talking about and I have re-tagged to the PDA and they have disappeared off the P&L.
In Fact I have gone through my 3 years worth of Expense Payments and renamed them ‘Drawing: for Renumeration’ and set me as the one to be paid. I have also clicked the box for Quick File to remember this in the future.
I have talked to Accountants to look at the accounts and was clearly told “you don’t earn enough!” so I go it alone…
I really appreciate you help (plus I have read the Help Files and the Basic Accounting PDF’s on the HELP portal thanks)
Have a good day.