Saving for Tax

[tvr450]

I always seems to get in a mess at this time of year and wonder how others put aside their CT and SA during the year? I have in the past taken salary and dividends during the year and saved tax money in the business account. However, then when I pay my SA, it comes out as a dividend which then attracts tax next year.

[Clare@InTouch]

I tend to advise people to open a business savings account at put aside the VAT plus 20% of their net invoice value there - that will cover all business taxes.

From a personal point of view do the same - after you've paid out dividends to the higher rate limit just put aside 25% of anything else into a savings account. The first year may be more difficult due to payments on account, but after that it should even out and you'll have it set aside for when you need it.

[Craig at Nixon Williams]

CT should be saved in the company account – if you only take dividends from profits available then (assuming all invoices have been paid correctly) there should always be enough funds in the company account for all taxes.

SA should be saved in your personal account – you should put aside 25% of any dividend that you take once you are a higher rate tax payer in the year. There are numerous calculators out there (including one on our website) which can be used to work out your current position in regards to higher rate tax. This doesn’t include payments on account, but that should work itself out if you take dividends fairly evenly throughout the year…

Hope this helps!
Craig

[Scrag Meister]

I have 3 accounts

1 Main Current
2 CT
3 VAT

For every invoice paid, the VAT is transferred in to the VAT account.

At every dividend (additional 25% of net dividend) and additionally at year end CT is accrued in the CT account ready for the demand when it arrives.

Tax and NI on Base salary paid via PAYE quarterly.
Max tax free dividend taken each April 7th

Any further dividends I put 25% of the net paid dividend in a personal (non-company) Tax savings account.

Has worked for me so far.

IANAA

[jmo21]

I always seems to get in a mess at this time of year and wonder how others put aside their CT and SA during the year? I have in the past taken salary and dividends during the year and saved tax money in the business account. However, then when I pay my SA, it comes out as a dividend which then attracts tax next year.

Stop taking money out the company account.

[northernladuk]

How exactly do you get in a mess? You can't divi out the CT and VAT as it is not profit so would be an illegal dividend. You should be able to estimate your SA and save enough in your personal account to cover that. None of this is rocket science.

I have to wonder where your war chest is if you can't pay you SA and you don't have enough in your business account for CT and VAT?

[TheCyclingProgrammer]

I keep everything in my business current account; the physical location of the money isn't important to me, as I spend according to what my accounts say. I use FreeAgent which means I always know how much retained profit I have in the company and what liabilities I have (same if you're using any other online system). Dividends should always come out of retained profit anyway, so you should have the corporation tax and VAT liabilities covered at all times unless you're taking out loans.

For personal taxation; I don't normally have a tax bill as I stay within the higher threshold but if I did have a tax bill to pay I would account for that when paying any dividends at the higher rate, and stick the tax in a savings account until it's needed. But likewise with my personal spending, I spend according to my personal budget (I use YNAB), not what's in my bank account(s).

[TheCyclingProgrammer]

This doesn’t include payments on account, but that should work itself out if you take dividends fairly evenly throughout the year…

If you were to take a lump sum from the company in one year, pushing you into the higher rate, but you normally don't go into the higher rate as you pay regular dividends up to the threshold, would it be reasonable to apply to have the payments on account reduced to nil in that situation?

[Jeremiah@RHJAccountants]

Claire & Craig have pretty much summed up what we advise to our clients.

Save any CT and VAT in company savings account.

Any dividends you take that put you into higher rate, save 25% of this in a personal savings account.

If you follow this process then you really should not be getting into a mess.

[Maslins]

CT should be saved in the company account – if you only take dividends from profits available then (assuming all invoices have been paid correctly) there should always be enough funds in the company account for all taxes.

This (applies for VAT as well). Not much sympathy re these (especially as virtually all our clients are FreeAgent users which gives them nice easy access to the relevant numbers).

I do have a bit more sympathy re SA, as it can get confusing because you get a certain amount effectively tax free before you need to set aside 25%...then payments on account and/or student loan contributions can give people a nasty surprise.