What are we Taxed on?

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Graham_454
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As a sole trader or partnership my understanding is that tax is levied on profits NOT drawings. This means (presumably) that if one buys a property valued at 120k for 90k cash, then remortgages it for 100k on an interest only morgage with repayments of 525 pcm - and then rents it out for 625 pcm then, assuming there were no other business expenses (Ha! dream on) tax would be calculated on the rent minus the mortgage repayments (ie. 100 x 12 = 1,200 pa.)
Whatever happenes to the 10,000 left over from the mortgage is irrelevant because if it stayed in the business bank account it would still be a debt (apart from any interest it may earn) and if it was taken out and spent on cream cakes and chocolate it would be classed as drawings not profit.

Is my thinking correct?


03/03/2008 00:00

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