Every year, a good number of business owners get the same surprise. The accounts are done, the tax figure arrives, and it’s bigger than the money sitting in the bank.
It isn’t usually bad luck. It’s that tax has no place in the business’s day-to-day money. The cash comes in, it gets spent on the bills, the stock, the van, the wages, and the tax is left until it’s due.
Here’s something I regularly see when I look at small-business numbers. The money that belongs to HMRC is sitting in the same pot as the money that belongs to you, so it looks like there’s more to spend than there really is.
A simple habit that helps
Many of the businesses I work with move a set amount into a separate savings account every time they’re paid. Out of sight, it’s far harder to treat it as spare cash. When the bill arrives, there’s something there to meet it.
A few things to keep in mind:
- A separate tax pot makes surprises less likely, but it doesn’t guarantee the bill will be covered. Leave it alone, and review it regularly to check you’re putting enough aside.
- The right percentage depends on your business, your profits and how you pay yourself. Check it with your accountant rather than copying a number you’ve seen online.
- Put money aside for VAT and any payments on account too, not just income tax or corporation tax.
Why this matters beyond the tax bill
When tax stops being a shock, the rest gets easier. You know what you can spend, you can pay yourself with more confidence, and the end of the financial year stops being something to dread.
If you’d like a practical place to start, our free guide, “Where does all my money go?”, takes you through five simple steps and includes a worksheet: get the free guide.
And if you’d like to talk it through, you can book a free discovery call.
