In this video I am going to give you a handy tip to save for your corporation tax.
Unlike being an employee where you get taxed at source. A big benefit of being a Limited company is your corporation tax doesn’t need to be paid until 9 months and a day after your year end (See HMRC).
Which when you think about it, is a long time!
Corporation tax
Depending how much profit you make in your business you will be paying a corporation tax rate between 19% and 25%. The new rates came in from 1st April 2023. (Corporation tax rates).
It’s really easy to make sales, forget about your tax and then when its due think oh sugar!
A tax pot
A handy tip and something that I do in my business is automatically save a percentage of all sales into a separate pot, so the money is never sitting around in your main account.
The new banks like Monzo and Starling let you do this automatically, some of the older banks you may have to do in manually.
I save 20% automatically in a separate pot and don’t touch it.
You can choose what percentage works for you. 20% is a nice amount because it’s likely that you will be over saving as costs still need to be offset.
VAT registered
If you’re VAT registered this can make it a bit more complicated. If you’re really organised you could set up a VAT pot as well.
Here’s an example:
You make a sale for £1000 + £200 VAT: £1200, then £1200 comes into your bank account.
£200 could go to a corporation tax pot, which is 20% of your net sales (20% of £1000).
Then the £200 VAT could go to a VAT pot.
Sweet! Your taxes are put to one side and you have £800 cash flow to run your business. You’re in a great position when the dreaded tax bill comes a long.
It works for my business, it works for clients, so get that tax pot set up today!
If you’re looking for an accountant who will care, communicate and give you the support you need, book a discovery call today.
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