Tax payments are among the largest amounts most businesses pay out, and also among the most predictable. The dates are set well in advance and the amounts can be estimated with reasonable accuracy. Yet they’re one of the most common causes of a cash squeeze. Usually it isn’t that the business can’t afford the tax; it’s that the cash wasn’t set aside for it.
The main dates for a typical small business
| Payment | Usually due |
|---|---|
| PAYE and National Insurance | 22nd of the following month if paid electronically (19th if paying by post). Some smaller employers can pay quarterly. |
| VAT (quarterly returns) | One calendar month and seven days after the end of the VAT quarter. |
| Corporation Tax (most small and medium companies) | Nine months and one day after the end of the accounting period. |
| Self Assessment (sole traders and partners) | 31 January and 31 July for payments on account, with any balancing payment on 31 January. |
These are the standard rules at the time of writing. Some businesses use different arrangements, such as the VAT Annual Accounting Scheme, or large companies paying Corporation Tax in instalments, so check your own position with your accountant or HMRC guidance.
Why tax bills catch people out
- VAT feels like income. It arrives in your bank account with every customer payment, so it’s easy to spend it before the quarter-end bill arrives.
- Corporation Tax arrives late. Nine months after the year end, trading may look very different from the year the tax relates to.
- PAYE grows quietly. New starters, pay rises and bonuses all push the monthly bill up, sometimes without anyone updating the plan.
- Several can land together. For a company with a 31 December year end and VAT quarters ending in August, Corporation Tax (1 October), VAT (7 October) and PAYE (22 October) all fall in the same month.
The tax bill is rarely the problem. Not having planned for it is.
Five ways to stay ahead
- Put every tax date in your forecast, with an estimated amount, at least three months ahead.
- Set VAT aside as you go. Moving the VAT element of your receipts into a separate account each week means the money is there when the return is due.
- Estimate Corporation Tax early. Once you have a reasonable view of the year’s profit, start putting a monthly amount aside rather than waiting for the final figure.
- Check the forecast before big decisions. Bonuses, equipment and new hires are easier to time well when you can see where the tax payments fall.
- If you can see a problem, talk to HMRC early. HMRC can agree a Time to Pay arrangement with businesses that can’t pay in full. It’s far better to ask before the due date than after.
If you’d like a second pair of eyes on when your big payments land and whether your cash will cover them, a free cash health review is a good place to start.
An accountant of ten years who has built more cashflow forecasts than hot dinners. I help owner-managed businesses see what’s coming and plan for it. More about me.