You are probably aware of the increase in
corporation tax earlier this year (April
2007); but are you preparing effectively to
meet your corporation tax bills? A new
survey shows that a worrying 60% of
businesses do not put aside funds to pay
their tax bill before the deadline.
With a hike in corporation tax for small
businesses in April 2007, and plans for
further increases over the next two years,
it’s increasingly important that small
businesses plan in advance to ensure they
have enough funds available. But a YouGov
poll commissioned by Alliance & Leicester
Commercial Bank reveals a worrying number of
businesses are not geared up to pay their
bill.
Only 40% of SMEs have set aside sufficient
funds to cover their corporation tax
payments ahead of the deadline for their
business. Despite saving to pay their bill,
more than four in ten of these companies
(44%) keep the money in a current account,
missing out on millions of pounds in
potential interest by not making their money
work harder for them
The results also reveal an alarming trend to
leave things until the last moment. Just
over one third of those questioned (35%) are
waiting until closer to their specific
deadline before making preparations. But
with penalties and interest charges for
companies that miss their payment date, this
can be an expensive mistake to make.
However, for some the problem is not a lack
of preparation, but the fact that they
simply cannot afford the bill. A worrying
19% of companies that have not set aside
extra funds say they can’t because of the
number of late payments owed to them at any
one time.
Those that aren’t ready say they are going
to have to resort to taking tough measures
to meet their corporate tax deadline,
potentially risking the future financial
health of their business. A quarter (25%)
said they will have to use personal finances
and 23% said they would have to delve into
company profits, reducing the amount
business owners can plough back into their
company.
Steve Jennings, Director of Business Banking
at Alliance & Leicester Commercial Bank,
said: “Although businesses expect a
corporation tax bill, it can create sudden
cash demands on a company, particularly SMEs
who might already struggle with their cash
flow. This research highlights just how
ill-prepared some businesses are and it is
worrying to think that they are jeopardising
their future business prosperity by dipping
into company profits or using their own
money.
“Good advice to any small business owners is
to make their cash work harder for them by
putting funds aside throughout the year or
deposit year end profits in an account that
offers quick access and risk-free high
levels of return.”
Find out more about
taxation issues in our Accounting portal.
