Step 2 Work out your business and household budget

​Drawings

When you take your business’s average costs each month from its average income each month, this will tell you what your profit is before tax. To work out how much you can afford to take from the business each month, Your budget will work out roughly how much tax and National Insurance you will have to pay. You should set aside this amount for when you get your next bill.

National Insurance

Many self-employed people have difficulties paying their income tax and National Insurance because they haven’t budgeted for it as a cost before they take money out of the business. If you do not account for income tax and National Insurance, this may give the false impression that you earn more from your business than you actually do.

Self-assessment – income tax

See our fact sheet:

Income tax debt.

Under the self-assessment scheme, you have to keep proper financial records, fill in a tax return and make payments during the year (known as payments on account). It is important to know how to fill in the return and to know when your returns need to be handed in. You may have to pay a penalty if you are late handing in your returns or late paying income tax. If you are unsure, contact us for advice.

Information: 

Scottish rate of Income Tax

From 6 April 2016 if you live in Scotland you will pay the Scottish rate of Income Tax. You will pay the same amount as people living in the rest of the UK, but 10% will go directly to the Scottish Government. For more information see www.gov.uk/scottish-rate-income-tax.

Your budget will help you work out your monthly income tax and National Insurance. If you have problems working out how much income tax and National Insurance you have to pay, or you have any questions about self-assessment, contact us for advice.

Information:

is my business viable?

Your business is viable if:

  • you can pay all of your business outgoings on time; and
  • you can take (draw) enough money to live on.

Your business is also classed as viable if you have a lot of assets which, if sold, would pay off all your business debts. If you think your business is not viable, contact us for advice.

When you have used Your budget to work out your income tax and National Insurance, it will show you your Available drawings (the money you can take from your business to add to your household income).

Before you work out whether this is enough to cover Your household outgoings, you should see if there are ways to increase your business income or reduce your business outgoings.

Ways of increasing your business income

Reducing your business outgoings

If there is nothing left for drawings, contact us for advice.