Tax – your financial planning tool!

Let’s face it, none of us like paying tax.

It seems unfair sometimes, doesn’t it, that a Government who is put in place to govern the country and sometimes imposes upon us policies, rules and restrictions, is allowed to force us to pay for those policies which we don‘t personally agree with or like?

But to quote Benjamin Franklin, “In this world nothing is certain, except death and taxes”.

So how can we turn something which we can do very little about into a tool to help us in our business?

Why do we pay taxes? We pay taxes in order that the country in which we live provides the services and support to us all, according to our needs. Without taxes being paid, the less fortunate in society would get no financial support. Without taxes being paid the streets wouldn’t be swept, the rubbish wouldn’t be collected, our children wouldn’t be educated, we wouldn’t be cared for in our dotage, and all those other services which we take for granted wouldn’t happen. And Central and local Government organises all that on our behalf and makes decisions about what services to provide. We might not agree with some of their decisions, but we can't deny that someone needs to make them. But someone has to pay for it.

In a previous article I talked about how tax avoidance isn’t victimless. Every pound not paid in tax when it should be is another pound burden on those who are open about their tax liability. I’m not suggesting that we shouldn’t be tax efficient and take our tax allowances, but we should be prepared to pay the tax we owe.

In essence, the more tax we’re paying, the more profit we are making. So if you think about it, tax is just another expense which you need to plan into your business, just like buying a new van, or paying your employees. We make provision each month for our salary bill, and we plan in when we buy a new van, so why don’t we set aside money to pay our tax bill?

The problem is that the tax demand comes in one hit after we have made the profit, when we no longer have the money and perhaps trading has dropped off a bit so there is no way to recover it.

But we should be expecting the tax bill, and we probably are. We just don’t know how much we need to set aside for it. But it needs to be part of our financial plan.

So, if we had a financial plan which predicted in advance what our expected revenue was going to be, and the same with our costs, we could predict what our tax bill is going to be, and we could set money aside for it. And of course if short term cash flow issues get in the way, the Government is good enough to give us nine months in which to get the money together out of future revenues.

Of course, there are other benefits to having a proper financial plan, which are nothing to do with tax:

  • You can see if you’re making enough money to invest in the things you want to do in your business
  • You can see what money you can afford to take out of your business this year, and therefore buy the new house, the new car
  • You can foresee when things are starting to go wrong, and you have time to react before it gets really, really bad.

At Smart Support we have extensive success in helping our clients to pay more tax through growing their businesses, increasing their profit margins and reducing their costs. At the same time we have a range of simple tools and methods to help with planning your cash flow, so that tax becomes a nice problem to have.

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