Whether you are self-employed or run your business through a company, the profits you produce are subject to tax less any reliefs for past losses or investments in assets that qualify for tax relief.
As most accounts software packages do not allow for these tax liabilities on a month-by-month basis, there is a tendency to see any cash balances as available for spending, when in reality, part of those cash resources will be needed to fund future tax payments.
How to make a realistic reserve
If you produce monthly or quarterly management accounts, it is possible to estimate corporation tax or income tax liabilities for the current accounting year or tax year.
You could then make a mental note to keep current year and any unpaid past-year tax liabilities in reserve or transfer sufficient funds to a separate deposit account.
In this way when you look at the balance on your core business account it should represent funds that are available to invest in your business or monies you could withdraw – subject to solvency restrictions.
We can help
Having access to up-to-date management accounts is an invaluable resource in these uncertain times.
Monitoring your trading results in real time will allow you to base business decisions on your current trading rather than past results.
Factoring-in reserves for taxation is the icing on the cake.
If you would like to discuss your options to produce regular management accounts and/or make realistic reserves for corporation tax or income tax, please call.
Source: DocSafe
