Knowing what tax to pay can help you sleep at night
Author: Russell SmithApril 22, 2013
Nobody likes unexpected bills.
For some businesses, when the end of year tax bill shows up in a brown envelope, it can be a surprise and not a pleasant one.
The end of year tax will often be one of the largest if not the largest bills that you have to pay in your business. Even if your profit and loss account says that you should be able to afford it, your bank account may say something different. A large tax bill is your reward for good profits but it can blow a hole through your cash flow.
Of course, tax should never be a surprise since every business owner should know it is coming. If you are a limited company, you have to pay it 9 months and a day after your company year end. If you are self-employed, it is paid on 31 January and 31 July. So why is it a surprise for many business owners? Here’s a couple of reasons….
Firstly, the year-end accounts are not completed on time. Officially, you’ve got 9 months to get them to Companies House to avoid a £150 fine but this is also the tax deadline, so it should never be used as the accounts deadline. Year-end accounts should be done and dusted at the latest 3 months after the year end, you’ve then got 6 months to make sure you have the money for the tax bill (same for self-employed, although you get 7 months if you complete your personal tax return by 30 June).
Secondly, because of the complexity of our tax system, businesses are reluctant to guesstimate their tax. However, this can be done if you know two things, that you are taxed on your profits (not your income) and that the tax rates for limited companies are 20% (and 29% for self-employment). Just by applying this simple calculation should get you nearer to the tax you have to pay.
Knowing your tax quickly can you give you the comfort that your cash is under control and gives you confidence in ensuring HMRC will be paid.