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Hi,
I have just received correspondence from the CMS informing me that they have made a calculation of my earnings and have basically told me I am due to start paying 10% of this. I have no idea where they have reached the figure, I recently started my own business and I informed them several months ago that I would not be taking any drawings/wages from the business for at least the first 12-18 months. Any profits that are being made are being ploughed back into the business to ensure it has a chance of success, I also offset car running costs and a portion of household bills against legitimate business expenses and am currently helped with housing costs with a housing benefit claim. I am confused to say the least as to how they have reached a seemingly arbitrary figure for my income and demanding payments based on this?
Thanks
Hi There,
my understanding is that if you are making a profit then you are liable to pay, if you re invest the profit into the business for example to buy new stock the it is still profit, if the profit was spent on business expenses like bills, wages (not to yourself) equipment ect then it won't how as a profit as it is business expence.
That's my understanding though it may be worth having a chat with an accountant to clarify.
GTTS
Thanks for the reply,
I do my own bookkeeping and accounts at present so don't employ an accountant as yet. However, it is my understanding that the cost of any goods purchased for resale is an allowable business expense for HMRC purposes? So surely this would mean that any monies(profit) that is being put back into the business for stock purchasing, for example, is classified as a business expense and so cannot be regarded as income by the CMS?
That sounds ligitemate, but it's always confused me as by that undersatnding a business could grow and grow and effectively never pay any tax to HMRC as long as they re invested 100% of the profit which doesn't sit right. HMRC will always want thier slice. I am of course happy to be wrong.
I would give a few accountants a call make out you are looking for one to do your books and accounts, ask them what they charge ect ect and then just drop the question in at the end as a "oh actually whilst your on the phone" get them to clarify it.
GTTS
I'm not an accountant, so this is guesswork, but ultimately, I would have thought that somewhere, you must be drawing money out of the business for you own living expenses and the CMS will probably take the 10% figure as a reasonable calculation for this figure.
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