OK I expect there are a few people who are scratching their heads, thinking they’ve read the title wrong. Does it say ‘early’? Why on earth would an accountant suggest paying taxes early? Aren’t they supposed to reduce the amount of tax I pay?
Well yes, we do minimise the amount of tax payable, through legitimate means. We are working on the assumption that you already have a tax bill of some kind, so tax is payable anyway.
I know there are a lot of people who don’t like paying tax at all, for a variety of reasons, ranging from their political beliefs to the thought of the guy in the pub who “doesn’t pay any tax at all”. Sorry, whether you like it or not, it’s going to be due. The following may not convert you, but it should be reason to make you think.
1. You cannot predict the future. You’ve just finished your trading year, you’ve had a good year, money is in the bank, and tax will be due in about 6 months time. Then, you go through a dry period. You use the tax money for basic things, like putting bread on the table and making sure you have a roof over your head. Your pot is now empty, but the tax bill is still payable.
2. It’s due anyway. It’s another bill, you have to pay it, so why not just pay it early and get it out of the way? Self assessment tends to be due twice a year, at the end of January and July. The January payment is particularly harsh, as it comes just after Christmas, when many people don’t have a lot of cash. Doesn’t it make sense to get it paid and out of the way?
3. You get next to nothing on your investments. The thought of investing your tax bill money in a savings account may be tempting, but short term interest rates are not good at the moment. Is there any point in hanging onto the HMRC cash?
4. It is good cash flow management. The basis of running a successful company is cash flow. Without it, the business will dry up. HMRC should be viewed as another supplier, so their bills should be factored into your cash flow.
There are, of course, many people who will not pay HMRC until the last possible minute. However, that’s not to say that you can’t pay it early. In some instances, regular payments may be worth considering. For instance, if you have a corporation tax bill of £6,000 due at the end of December, you could pay £1,000 per month from July to December. This may be easier to manage and control.