As a small business owner, planning ahead is essential for financial stability. Calculating what taxes will be owed for the business year as far in advance as possible can help ensure cashflow remains steady and expenses can be covered without dipping into the tax fund.
Tax liability and regulations change depending on the type of business and the jurisdiction, so the first stage of any tax planning strategy is familiarisation with the law and which taxes will be due.
Types of taxes may include VAT, corporation tax, income tax, business rates, dividend tax, capital gains tax, national insurance, state tax and others. Being prepared for any potential tax bill can help with maintaining accurate records and with capital allocation.
Keeping accurate records throughout the year ensures that all the relevant information is at hand when it comes time to pay any tax bill. It can also save spending several days at the end of each tax year organising receipts and other documentation.
Setting some time aside at least once a month to organise files and receipts can save a lot of time in the longer-term. Where this is not possible, filing everything in date order will still save some time.
The most important things to keep track of are all income and expenditures, no matter how large or small. Keeping records of which taxes are liable and when they are due alongside these records can help ensure there are no unexpected surprises when it comes to outgoings.
Pre-printed tax forms can help organise everything and ensure records are maintained to professional standards. They can also help business owners understand exactly what information they need to keep records of to be able to fill them in.
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The more separate funds are kept, the easier it is to keep track of what has been paid, what is due and what money is left over.
If there is only a single bank account for the business then it may not be possible to separate funds, in which case careful record keeping is even more essential.
Where possible, having one account for each bill or tax liability can help business owners maintain their finances and prevent the temptation to pay one bill with money earmarked for another, which can be one of the fastest ways of allowing debt to creep up.
Having multiple bank accounts may seem unnecessary but it can be one of the easiest ways to keep track of all incomings and outgoings.
Managing multiple accounts is easier than it sounds as each individual account has a sole purpose. All that is required is to put the right amount of money in that account each month and let direct debits and standing orders do the rest of the work.
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A sole trader who works from home and has minimal expenses will probably find it relatively simple to calculate taxes owed each year.
A limited company owner with employees, a company car and a business expense account will have more factors to consider.
Doing your own books can be a great way to stay on top of every aspect of the business for those that have the time and the knowledge to do so. However, for many, the services of a professional accountant may be invaluable.
The primary benefit of hiring a professional accountant is peace of mind that they will know exactly what to look for, what needs paying and when.
The primary downside is they come with fees. Anyone struggling with managing their own business accounts could try recording how many hours they spend looking at the books and then offsetting their own wages against the cost of hiring a professional to see the bigger picture in terms of cost to benefit ratio.
When taxes are planned for, they do not come as a surprise and business finance can be much better managed throughout the year.
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