Now there is some breathing space after the 31 January tax deadline, it’s a good time to give your finances some TLC.
This could be something small – for example, in order to prevent that big January credit card bill after Christmas, I took some advice from the oracle that is my mother and set up a Christmas bank account. I set a weekly standing order transferring £10 (the cost of a few coffees) from my current account to this account. By the end of the year, I save enough to not worry about whacking everyone’s presents, the turkey and the inevitable overspend on drinking during the festive period on my credit card. Simple, but effective!
Suggestion two – we sometimes find that people struggle finding the funds to pay their corporation tax and VAT bill. Say you are a VAT-registered contractor running through a limited company, a simple, yet often ignored mantra, is to set aside 30% of any receipts from customers into a separate bank account as soon as it is received. This will cover the VAT on the invoice, and will cover most of the corporation tax due.
For example, you receive money from a customer of £1,200. £200 of this is owed to the VAT man, leaving you £1,000. If you don’t have any expenses, you’d then generally have to pay tax on this £1,000 at 19%, which is £190. Together, this is £390, and 33% of your original £1,200. Of course, you may have some expenses such as a tax-efficient salary, claims for your use of home as office or travel costs, so maybe save 30% instead, whatever works for you, its better than dreading the bill at the end of the quarter/year.
This way, you can also help to ensure you don’t take out too much money from the company as this can lead you to having an overdrawn director’s loan account (where you owe the company money), which has nasty tax consequences of its own.
Suggestion three – Have a think about what VAT scheme you are on – if your turnover is £1.35million or less, you can join the cash scheme, which means you only pay VAT on your sales when your customers pay you. You do need to consider that you can only reclaim VAT on your purchases when you have paid your supplier, but this can help ease cash flow where people are a bit slow at paying you.
Suggestion four – Go Digital. Lots of businesses are moving their accounting to cloud software such as Xero – this lets you see really clearly, how much VAT you owe at any point and what profits you have made for the year-to-date, so you can estimate your CT bill.
The better, more up to date information you have, the more comfort you can feel that your finances are on track.
You can update your expenses and invoice customers on the go on your mobile, link it up to your business bank account so that keeping on track of who owes you what is really easy, and is MTD (Making Tax Digital) for VAT ready, so you don’t have to worry about the changes coming in April this year.
Its also pretty reasonable – with most business able to use their standard package, which is £22 + VAT per month.
Get in touch if you would like more information, we’d be happy to talk through how Xero could help your business.