Recently, I spoke about managing your cashflow and creating a financial forecast, so that you know how your business is performing and the money you have available in your business (if any). This leads me nicely onto the subject of the dreaded tax bill.
The time of year is almost upon us that most business owners dread—self-assessment. Many people put it off for as long as they can, but in practice, this is not a good idea, and here’s why…
Self-assessment tax returns can be submitted at any time after the end of said tax year, so why leave it until the last minute? I understand that, should you be making a profit, you may not want to pay the taxman sooner than you need to; however, if you do owe tax, and you’ve spent it, submitting your return earlier rather than later gives you time to save up before it has to be paid across.
This leads onto my next point: saving for tax. When I worked in a bank, I always recommended that my customers put money aside for their tax bill in a separate savings account. At the end of the day, it’s money that you have to pay across; and, in terms of VAT, it’s not your money anyway! If you’re spending your VAT money and cannot pay it back when it’s due, it’s like stealing from the government. The tax man is not going to wait around forever for what he’s due, so it’s smart to put good practices in place.
Limited companies enjoy a grace period before they have to submit accounts. If a limited company is making a profit and has the cash, it’s a good idea at this point to purchase assets, stock or machinery that the business may need…but—and this is important—don’t leave your business short of cashflow. This scenario can help reduce the business’s tax liability. You can also do this through directors’ pension contributions.
As with any tax or financial matter, always seek the expertise of a professional, such as your accountant or financial adviser. If your accountant is any good, they should be advising you of ways you can legitimately reduce your liability to the tax man.
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