Saving money doesn’t always come naturally to everyone. Some of us are great at saving for a rainy day but others like to spend! When it comes to your tax and VAT bills it’s important that you have the money set aside for the payment deadline. If you don’t, this will result in fines and interest being applied to the outstanding amount by HMRC. Let’s face it no one wants to pay the tax man more than they need to!
If you’re new in business you may not have been aware of the payment on account which is also added to your self assessment tax bill. A payment on account is an advanced payment towards your next tax bill. You will be required to pay this in 2 separate amounts, once on 31st January along with your tax bill for the year and then again on 31st July.
How do I ensure I have the right amount of money set aside?
We advise all of our clients to put at least 20% of every sales invoice to one side. This will ensure you have enough money to cover your VAT bill so that there are no nasty surprises. It’s best to transfer these amounts into a savings account or savings space within your business account to make sure you don’t touch this money throughout the year.
Your bookkeeper or accountant can help you to review your profit and loss on a monthly basis in order to estimate the amount of tax you will be due to pay. It’s good practice to put aside a portion of the profits towards your tax, the percentage you save will depend on whether you are a sole trader or limited company and the rate of tax you have to pay.
Avoiding stress at the deadline
We will be the first to acknowledge that your tax bill isn’t well timed. You enjoy the Christmas break and then the next thing you know it’s time to file and pay your self assessment tax bill. If your bookkeeping is up to date, why not file your tax return on 6th April? This way you will know how much you need to pay by January in order to plan ahead and set the right amount of money aside. You can then enjoy the festivities without worrying about having to file your return.
Having a bookkeeper to guide and support you throughout the year will ensure you meet deadlines, avoid stress and you’re kept up to date with the latest legislation. If you haven’t set your goals for 2023, speak to your bookkeeper about how your finances can become healthier this new year and plan ahead together to become much more productive in 2023.