Whether you are self-employed or have your own company your periodic business tax payments will always be based on the yearly trading profits and other chargeable gains made, plus any capital profits.
If you run your business through a company, corporation tax payable on adjusted business profits (after allowances for capital purchases) is payable 9 months and one day after your year-end date. Accordingly, corporation tax due for the accounting year to 31 March 2016, will be due for payment 1 January 2017.
As a quick fix, you could transfer between 15% and 20% of your monthly profits to a deposit account to partly cover this liability.
If you are self-employed, your business profits will form part of your self-assessment tax return. The amount of tax you will pay is split into two instalments on account, and a balancing adjustment if necessary.
In order to reserve cash for your self-assessment tax payments, the math is more complex. Your best option is to deduct a £1,000 per month (being your approximate income tax personal allowance) for each business partner, from the trading profits you make and apply 30% to what’s left. Transfer this amount to a deposit account. However, this will only provide the funds to pay tax on your business profits. If you have other taxable income this will have to be factored in.
How we can help. Planning for tax payments is a critical task for the self-employed or incorporated business owner. The calculations can be somewhat complex so be sure to seek professional advice. There is nothing more disheartening than an unexpected tax bill when your bank account is empty.