How To Finance Your Tax Bill
We are coming up to that time of year. Corporation tax has to be paid within 9 months and 1 day of the end of your financial year. The most common year end dates are 30th March and 30th April which means that the dreaded Corporation Tax needs to be paid by end of December or January.
Anyone who says that ‘you knew it was due’ or ‘you know you have to pay it’ is quite right, but they have also probably never run a business of their own.
For most small companies they will have an idea of the amount of tax they need to pay, but will not know for definite until the full set of year end accounts are produced. For many small businesses this means only knowing your Corporation tax amount a few days before it is due.
Negotiate With HMRC?
You could do. I wish you every success and hope that HMRC will play ball. In many cases HMRC can be quite helpful, the risk comes when you may have negotiated with HMRC previously or even still be paying off last year’s bill.
Either way, one of the first things anyone will tell you in business is to keep the taxman happy. It is also very true.
In HMRC’s Code of Practice on Collection of Tax (Code of Practice 6), HMRC says;
If you know that you will have difficulty paying your tax when it is due you should tell us as soon as possible. The more you keep us informed, the more we are likely to be able to help.
Often if you speak to HMRC then they will try to help. If you had an arrangement last year, have other arrears or simply want to keep a clean slate in case you need to negotiate with HMRC in the future then you could look to use finance to pay your tax.
Quite often a request to your bank manager for a loan to pay tax can open a can of worms. Banks rate risk on the likelihood of default, the financial stability of the borrower, the security and other factors. Needing to take a loan to pay tax raises concerns and could lead to other bank facilities your company has being reviewed.
There are a few other things to consider;
- What is your total tax liability? Include VAT, Corporation Tax, Tax still due from last year etc
- Consider when your next tax is due. Financing this tax bill is fine, but you need to consider how to gradually get out of the cycle of needing to borrow to pay your tax
- What are your longer term plans? How solid is your business, what else do you want to do that may require borrowing?
Whenever a business borrows it needs to be for the benefit of the business, that often means making some changes to how things are run. This could be as simple as putting cash aside for next year’s corporation tax.
Financing Tax, The Options
Let’s be honest, if you need to borrow to pay your tax then things are not 100% rosy. This means that the funding options available are likely to be;
- A little more narrow
- A little more expensive
- Come with fewer questions and a quicker answer
The good news is that there are options out there for you. Often if you go looking for these solutions yourself then you may come up short, mainly because loans for this purpose are not readily available on the high street.
Don’t panic as there are options for you. The main recommendation is to act earlier rather than later, get the options on the table and get it sorted before HMRC start chasing you.
For more details on your financing options then give Lime Consultancy a bell on 01293 541333 or make contact via our website.
By Dave Farmer
PS – Please add your comments above, share and spread the word about financing your Corporation Tax. For anything else then please get in touch.