Saving for tax

Got my tax bill from my accountant this week and realised instantly that i havnt saved enough for what the amount was.

I dont know how ive got this wrong. My method was to try and save 20% of profit and that should roughly cover it, give or take.

I spoke to my accountant about it who said that ive got til Jan to get the amount. Its not alot really but i thought from April onwards i am supposed to be saving for next years tax bill? Not still trying to get last years amount?

My accountant said this happens a hell of alot. But i always try and be as efficient as possible.

So if, ive got it right, now i will be saving for next years tax bill as well as finding the amount i owe for the previous year.

My main question is. What method do you use for saving for tax? Do you save a % of turnover or profit? And do you save an amount as a back up fund, incase anything goes wrong or you need to pay out a large amount?

I think i know roughly where ive gone wrong. I bought a couple of large bits of equipment, and i know this will recoup in the account over time. But im now thinking i should have had a back up fund to buy such items.

Thanks

Steve, I claim the full amount back within the tax year I purchase any new kit. I think you can claim up to £50k in any one tax year (not that i spend anywhere near that ), for kit you have bought in that period. I know most accountants advise to claim it over a few years , but to me, as I buy kit regularly, I want the full cost of the kit claimed back in the year i buy it. That way i get rebates most years and can reinvest it back straight away on more kit. Doesnt suit every business, but thats how i tell my accountant to offset any purchases.
Another way to save is pay as you earn through the year, as in pay your tax monthly, like most employed people do. I used to do a lot of CIS work, not now though, an your 20% was deducted before they paid you, so always had enough in my CIS account to pay tax bill every year. This year i am going to set up a pay as i earn account with HMRC, so i dont get any nasty surprises come tax bill time next year.

Replies

Andy Thorne May 10, 2012 at 11:56pm

One to remember Steve is that, if you pay tax out of the business eg 5K this year you will have to pay tax on that 5K next year, as well as your drawings....
PRO

Brian www.mibservices.co.uk May 11, 2012 at 12:15am

Steve, I claim the full amount back within the tax year I purchase any new kit. I think you can claim up to £50k in any one tax year (not that i spend anywhere near that ), for kit you have bought in that period. I know most accountants advise to claim it over a few years , but to me, as I buy kit regularly, I want the full cost of the kit claimed back in the year i buy it. That way i get rebates most years and can reinvest it back straight away on more kit. Doesnt suit every business, but thats how i tell my accountant to offset any purchases.
Another way to save is pay as you earn through the year, as in pay your tax monthly, like most employed people do. I used to do a lot of CIS work, not now though, an your 20% was deducted before they paid you, so always had enough in my CIS account to pay tax bill every year. This year i am going to set up a pay as i earn account with HMRC, so i dont get any nasty surprises come tax bill time next year.
Steve Sonic Grounds Maintenance May 11, 2012 at 6:55am

thanks guys

I do the same Brian. Last year i had quite a few large business purchases so my tax bill was alot less. Eg, newer van etc

This year ive not had many large purchases so there wasnt much to claim back on. Which is where part the problem has come from.

I think im going to increase the amount i save from 20% to 30% so that i can have a back up fund.

I like the idea of paying monthly Brian. Is this a nationwide service or just a service for people of Scotland?

Perhaps i will do some research on this one. Have you set this up yet?
PRO

Brian www.mibservices.co.uk May 11, 2012 at 9:48am

Hi Steve, yeah its a nationwide service HMRC offer, my accountant is setting it up this month. I just think it makes good sense to pay as you earn