What does it mean to "retain earnings/profits in busine

Rashid · Post by **Rashid** » Thu Apr 16, 2009 9:33 pm

Could somebody confirm that its OK to take out my earnings from my business (its a sole tradership and hence, I am the only owner) as I have already spent a lot from my business account and therefore, don't have much left in my account. Plz answer in the context of HOME OFFICE'S term "earnings/profits retained must be retained in the business" as I don't understand what does it exactly mean?

Post by **push** » Thu Apr 16, 2009 10:16 pm

Rashid wrote:Could somebody confirm that its OK to take out my earnings from my business (its a sole tradership and hence, I am the only owner) as I have already spent a lot from my business account and therefore, don't have much left in my account. Plz answer in the context of HOME OFFICE'S term "earnings/profits retained must be retained in the business" as I don't understand what does it exactly mean?

Dont know what the context is but Retained earnings are the P/L balance which are kept in the Share Holders account after payment of all operating and financing expenses and dividends. These are maintained in an account designated as Shareholder's account.

How do you pay yourself? through dividends ? If you copy pasted the relevant portion of the HO's clause I might be able be able to help you further.

shockboy2000 · Post by **shockboy2000** » Fri Apr 17, 2009 7:40 am

Retained: did the money earned by the business STAY in the business, either in the business bank account or was spent on assets that still belong to the business ?
If so, u go the self employed route.

If you are running the business purely to pay less personal tax, i.e. you are transferring to your personal bank account most of what originally went in to the business bank account...you go down the employee route

simples

xpscapable · Post by **xpscapable** » Fri Apr 17, 2009 7:55 am

A lot of people (in IT/medical profession) are contractors with private limited company setup.

You pay yourself a low salary. I pay myself minimum salary, around Â£879 / month. Some people only take director's fee for Â£5700/year. Take the rest as dividend.

A lot of people who don't need the money immediately, only take dividend + salary up to Â£40,000 / year. So if your yearly income is Â£100,000, after company tax, accountant expenses ,salary and other expenses you left with X number of money in the company bank account. That's what retained earning is. This structure is done for tax reasons.

After a number of years you close the company down, take the retained earning as capital gains and you pay a reduced amount of tax. Well that is the current law anyway. HMRC has been changing and tweaking this law over the past few years. At the moment you have a life time limit of Â£1.5 million take the company retained earning as capital gains.

Sushil-ACCA · Post by **Sushil-ACCA** » Fri Apr 17, 2009 10:09 am

GIve some money to accountantant, they will repare your accounts that will take all care

regards

Rashid · Post by **Rashid** » Fri Apr 17, 2009 12:57 pm

Hi All ,

Thanks a lot for your reponses ... I have copied a para from HO's webiste down here while it may please be taken into account that I use to either transfer from my biz account to my persnal account or take cash (through Biz account debit card) and hence, I am using most of my earnings for myself while any overhead expenses (for biz) are made throuhg biz account. Also, I haven't got my biz accounts finalized yet.Could you please let me have your comments in this situation?

Self-employed earnings within a business or company structure
If you have worked in a self-employed capacity in your own business or company structure and have chosen to keep your earnings within the business or company, you could send:

business or company accounts that meet statutory requirements and show the net profit made for the earnings period claimed; and
a letter from your accountant confirming the details in those accounts.
If you are not the sole shareholder of the company you should also provide a letter from your accountant confirming your shareholding and the proportion of net profit before tax to which you are entitled for the earnings period claimed

xpscapable · Post by **xpscapable** » Fri Apr 17, 2009 1:49 pm

Talk to your accountant. If you have business account you're not suppose to transfer money in / out to your personal account. It's illegal to do so.

Rashid · Post by **Rashid** » Fri Apr 17, 2009 6:09 pm

Can somebody else comment on XPACAPABLE's statement? as I really don't understand it. Throughout the world, amounts are transferred from biz to personal accounts (especially in case of sole tradership like mine) bcoz we genuinely need to use our earnings.
XPSCAPABLE's >>> Thankx for your help. Plz don't take my words as funny or dis-respectful; just wantd to have others' opinion about this matter as well.

xpscapable · Post by **xpscapable** » Sat Apr 18, 2009 4:35 pm

Rashid wrote:Can somebody else comment on XPACAPABLE's statement? as I really don't understand it. Throughout the world, amounts are transferred from biz to personal accounts (especially in case of sole tradership like mine) bcoz we genuinely need to use our earnings.
XPSCAPABLE's >>> Thankx for your help. Plz don't take my words as funny or dis-respectful; just wantd to have others' opinion about this matter as well.

None taken. I'm not entirely sure about sole tradership. But if you run a limited company / business you're not allowed to transfer money from bus account to personal account as this is illegal and that also means personal tax evasion.

This rule applies pretty much around the world, in countries where there are corporation law.

For sole trader, I'm not sure how that works. So best talk to accountant.

mambal06 · Post by **mambal06** » Sat Apr 18, 2009 5:13 pm

Rashid wrote:Could somebody confirm that its OK to take out my earnings from my business (its a sole tradership and hence, I am the only owner) as I have already spent a lot from my business account and therefore, don't have much left in my account. Plz answer in the context of HOME OFFICE'S term "earnings/profits retained must be retained in the business" as I don't understand what does it exactly mean?

CONSULT : www.taxassist.co.uk/ealing

Phone: 020 8432 2774

They specialises in HSMP visa holders.

mambal06 · Post by **mambal06** » Sat Apr 18, 2009 5:17 pm

xpscapable wrote:
Rashid wrote:Can somebody else comment on XPACAPABLE's statement? as I really don't understand it. Throughout the world, amounts are transferred from biz to personal accounts (especially in case of sole tradership like mine) bcoz we genuinely need to use our earnings.
XPSCAPABLE's >>> Thankx for your help. Plz don't take my words as funny or dis-respectful; just wantd to have others' opinion about this matter as well.
None taken. I'm not entirely sure about sole tradership. But if you run a limited company / business you're not allowed to transfer money from bus account to personal account as this is illegal and that also means personal tax evasion.

This rule applies pretty much around the world, in countries where there are corporation law.

For sole trader, I'm not sure how that works. So best talk to accountant.

What you are saying is completely wrong. I would suggest consult www.taxassist.co.uk/ealing

They specialises in HSMP cases.

xpscapable · Post by **xpscapable** » Sat Apr 18, 2009 6:11 pm

mambal06 wrote: What you are saying is completely wrong. I would suggest consult *** spam removed ***

They specialises in HSMP cases.

Nope I am right, same with the the thousands of contractors who operate under limited company structure.

http://www.contractoruk.com/managed_service_companies/

mambal06 · Post by **mambal06** » Sun Apr 19, 2009 11:26 am

xpscapable wrote:
mambal06 wrote: What you are saying is completely wrong. I would suggest consult *** spam removed ***

They specialises in HSMP cases.
Nope I am right, same with the the thousands of contractors who operate under limited company structure.

http://www.contractoruk.com/managed_service_companies/

I AM A QUALIFIED FCCA, ACA SURELY I KNOW BETTER THAN YOU.

Accountant · Post by **Accountant** » Sun Apr 19, 2009 11:34 am

xpscapable wrote:
mambal06 wrote: What you are saying is completely wrong. I would suggest consult *** spam removed ***

They specialises in HSMP cases.
Nope I am right, same with the the thousands of contractors who operate under limited company structure.

http://www.contractoruk.com/managed_service_companies/

Nope you are wrong, mambal06 is right. The defination of retained earnings is wider than whatever is suggested at the website.

LankanFunkin · Post by **LankanFunkin** » Sun Apr 19, 2009 2:33 pm

Accountant wrote:Nope you are wrong, mambal06 is right. The defination of retained earnings is wider than whatever is suggested at the website.

I cant help but notice that this was the FIRST post by "Accountant" (Sun Apr 19, 2009 10:34 am), made just 8 minutes after mambal06's I KNOW BETTER THAN YOU (Sun Apr 19, 2009 10:26 am). Coincidentally, Accountant just joined today (19 Apr 2009) as well...

Hmm, a case of split persoality / multiple accounts?

Just taking the pi$$, no harm intended

Post by **push** » Sun Apr 19, 2009 2:38 pm

LankanFunkin wrote:
Accountant wrote:Nope you are wrong, mambal06 is right. The defination of retained earnings is wider than whatever is suggested at the website.
I cant help but notice that this was the FIRST post by "Accountant" (Sun Apr 19, 2009 10:34 am), made just 8 minutes after mambal06's I KNOW BETTER THAN YOU (Sun Apr 19, 2009 10:26 am). Coincidentally, Accountant just joined today (19 Apr 2009) as well...

Hmm, a case of split persoality / multiple accounts?

Just taking the pi$$, no harm intended

hmmm......

Post by **push** » Sun Apr 19, 2009 2:41 pm

Btw, aren't you guys talking about different things here? - Sole trader v/s limited company??

Accountant · Post by **Accountant** » Sun Apr 19, 2009 3:13 pm

LankanFunkin wrote:
Accountant wrote:Nope you are wrong, mambal06 is right. The defination of retained earnings is wider than whatever is suggested at the website.
I cant help but notice that this was the FIRST post by "Accountant" (Sun Apr 19, 2009 10:34 am), made just 8 minutes after mambal06's I KNOW BETTER THAN YOU (Sun Apr 19, 2009 10:26 am). Coincidentally, Accountant just joined today (19 Apr 2009) as well...

Hmm, a case of split persoality / multiple accounts?

Just taking the pi$$, no harm intended

IT COULD BE BOTH. AS FAR AS THOSE THOUSANDS OF CONTRACTORS ARE CONCERNED, SOME OF THEM ARE MY CLIENTS NOW AND ARE IN TORUBLE WITH BOTH INLAND REVENUE AS WELL AS HOME OFFICE (FOR VISA PURPOSES) AS THEY WERE FOOLED BY THESE ONLINE ACCOUNTANCY SERVICE PROVIDERS, MANAGED SERVICE PROVIDERS AND UMBRELLA COMPANIES. TAKING OUT SALARY FROM A COMPANY JUST TO COVER PA, AND REST IN DIVIDEND SEEMS THE BEST POSSIBLE WAY TO SHOW EARNING AND SAVE PERSONAL TAX AT THE SAME TIME. BUT IS IT REALLY THAT SIMPLE?????? OR IS THERE SOMETHING MORE TO IT? AND ALSO ABOUT CAPITAL GAINS. OH SO TAKE OUT ALL THE MONEY AND JUST PAY CAPITAL GANIS TAX WHICH IS MUCH LOWER.... BTW HOW LOWER? CAN ANYBODY EXPLAIN ME? HOW MUCH ONE WOULD PAY IF HE/SHE IS HIGHER RATE TAX PAYER AND HOW MUCH ONE WOULD PAY AS CAPITAL GAINS TAX UNDER THE SAME CRITERIA. AND SURELY, AS IT SO SIMPLE, THERE ARE NO OTHER TAX ISSUES INVOLVED. GREAT. MAY BE SPLIT PERSONALITY IS NOT SO BAD AFTERALL.

iyanu · Post by **iyanu** » Sun Apr 19, 2009 4:13 pm

Accountant and Mambol6, this is a healthy arguement/discussion between you two.

I just want you to throw more light into this issue raised by Rashid and also support with links or references where possible because I can see this forum benefiting from this in a long time to come.

You guys have done well so far.

So accountant you are saying it is not right to transfer payment from Biz to personal a/c, right? So what is the best way to pay yourself when you operating a biz/limited company?

You have to be aware here that though it is limited company it is just a one director working for him/herself may be just an external accountant to prepare his/her a/c at the end of the acctg period.

Kindly throw more light please!

Rashid · Post by **Rashid** » Sun Apr 19, 2009 4:58 pm

iyanu wrote:Accountant and Mambol6, this is a healthy arguement/discussion between you two.

I just want you to throw more light into this issue raised by Rashid and also support with links or references where possible because I can see this forum benefiting from this in a long time to come.

You guys have done well so far.

So accountant you are saying it is not right to transfer payment from Biz to personal a/c, right? So what is the best way to pay yourself when you operating a biz/limited company?

You have to be aware here that though it is limited company it is just a one director working for him/herself may be just an external accountant to prepare his/her a/c at the end of the acctg period.

Kindly throw more light please!

Hi All
Further to Iyanu's statement, wud like to stick to the same matter/question but with an addition. How about sole tradership? as I am sole trader of my biz.
I had raised another query under a seperate head but feel it better to undestand both matters side by side coz (as mentioned by iyanu) u guys seem to be taking us to a direction. Other query is copied here under,
"I have been running a part time biz (in addition to my full time job) since October 08 but my business bank account wasn't opened until end of December. Therefore, I accepted part payments in cash from my customers while remainder was transferred to my biz account in JAN/FEB 09. Can I submit invoices, payment receipts & my tax return as an evidence for my earnings during that period? while bank atatement can be provided for anything earned JANUARY onwards. The reason I am looking for this confirmation is, that HOME OFFICE requires two seperate evidences from different sources. I intend to sibmit tax return, invoices & receipts for my earnings between Oct,08 (start date of biz) & Dec 08, then tax return, biz accounts and bank statement for period btwn Jan & April 09 (as tax return will be filed by end of April) and finally bank statement & accountant's letter for the period April onwards".
Do u guys agree with this plan?
Thnx

Rashid · Post by **Rashid** » Mon Apr 20, 2009 12:53 pm

Could anybody, especially seniors, get on to this for me? as I have got just a few weeks before my current visa expires?

Regards

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What does it mean to "retain earnings/profits in busine

What does it mean to "retain earnings/profits in busine

Re: What does it mean to "retain earnings/profits in bu

Re: What does it mean to "retain earnings/profits in bu