Sole traders/self-employed individuals may pay their personal tax and national insurance payments to HMRC using a business bank account, or from the same bank account that they use for their business. 

However, personal tax cannot be considered a business expense and it should not be recorded as such. Therefore, any payments for income tax and national insurance should be treated as funds being withdrawn from the business by its owner, even if the payment is made directly to HMRC. 

This guide explains how to explain these bank transactions in Clear Books. 

Personal tax and national insurance payments

If a personal tax payment has been made directly to HMRC from a bank account in Clear Books, this should be coded to account code “Drawings” as it is effectively money that the individual has withdrawn from the business. 

If you are VAT registered, select “Exclude from VAT return” as any drawings are also outside of the scope of VAT.

Note: You may wish to create extra accounts in the drawings area for different purposes such as tax payments made, personal expenditure etc.

Some sole traders/self-employed individuals choose to put money aside to pay for future personal tax and national insurance liabilities. 

If these transfers are made from a business bank account in Clear Books to a personal bank account, then this should also be coded to “Drawings” as they are amounts withdrawn from the business by the owner.

However, if the bank account that the money has been transferred to is also in Clear Books, then this bank transaction can be simply explained as a transfer between these two Clear Books bank accounts.