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Saving for the tax bill

All Areas > Legal & Finance > Money Matters

Author: Roger Downes, Posted: Tuesday, 25th September 2018, 09:00

“I’ve got to pay how much in tax, I don’t think I’ve got it?” If I had a pound for every time I heard that statement,
I would be the proverbial rich man. Many people I know are highly sensible and prudent; they tuck away a certain amount every month, so that when the tax bill comes along, the money is there to pay it.

Sadly not everyone follows that path. Some don’t care; if the money isn’t there when it comes time to pay the tax, it’s the government not they who are ‘losing out’. Others don’t realise; there’s hope for them, as they should listen to the advice about saving it once they’ve tripped over the issue the first time.

Another group would have done so if they had been told about it or perhaps thought about it for themselves. And there’s the ones who just can’t see that it makes economic sense to set aside enough to pay their liability when it falls due.

VAT is easiest for a business to deal with

VAT is the easiest for a business to deal with. If you charge somebody £100+VAT, at current rates you will receive £120 from your customer. £100 of that belongs to you, the other £20 doesn’t; it belongs to the government. What right have you got to spend it on the costs of running your business or, worse still, drawing the money out to spend personally? It’s not your money!

When it comes time, at the end of every quarter, you should have the money in your bank account to hand over to HMRC. If you haven’t, then your business is under-funded and is relying on money which does not belong to it in order to continue trading – not a healthy position in which to be.

Tax on profits is more difficult, as it’s calculated retrospectively and isn’t as simple as being an additional, identifiable sum on your invoices to customers. But there are ways of estimating it sufficiently accurately in every business. When you have estimated it, take it out of your day-to-day bank balance and put it into a savings account. If you don’t want to run one of those, pay it on account to HMRC every month.

A well-run business has sufficient working capital from its proprietors and lenders, such as the banks. It should not be propping itself up by inappropriate use of taxpayers’ money.

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