Corporation tax is a corporate tax payable by limited companies in the UK. It is deducted from the yearly revenues and capital gains of the companies. To be eligible to pay Corporation Tax to HMRC, company directors must register their firms at the time of trading.
The date on which the tax has to be paid (it is generally filed by a tax accountant from a professional tax preparation service is determined by the tax accounting period of the company in question. Corporation tax is due 9 months plus one day from the day the tax accounting period ends. In other words, company directors have three months from the date of trading to register with HMRC for corporation tax. Failure to do so results in legal actions.
Consequences of irregular cash flow due to loss
The annual tax payment is due in four instalments for enterprises with profits over £1.5 million and in one instalment for those with income under that amount. Naturally, companies need to have a steady cash flow in their accounts to be able to pay the corporation tax in time. Any hiccup in the cash flow is a red flag and has to be rectified immediately.
If a company faces a downturn in its trade and a dwindling cash flow, the last thing it will like to witness is a substantial corporation tax (CT) bill. Unfortunately, the point is that this might very well be the outcome, because of the manner in which the CT bills are timed. That’s why every professional tax consultant would suggest paying the CT in time.
The rules, however, give the enterprises the leverage to reduce the CT payable on current profits in case they have suffered losses in preceding year(s). However, losses that have been incurred in the current year can’t be set against the CT bill of the previous year, till the accounts for the loss-making period have been prepared and a corresponding claim for the tax relief has been made.
How do Improve the Cash flow?
It might be helpful for businesses to know whether they can pay their expenses or whether they need to discover methods to bring in more money by considering the payables and receivables.
Therefore, by conducting a comprehensive cash flow analysis, they can determine
the times during which the cash flow will be negative. Also, they can identify strategies to accelerate the inflow of funds that will help pay CT bills on time.
Let us discuss ways to improve cash flow.
Offering discounts as rewards for early payments
If consumers pay their invoices before the specified deadline, a reward in the form of a discount or an incentive can be provided to them. It is a win-win situation for the business as well as the consumers, as they can save money on their purchase, and the business can have a steady cash flow.
Sending invoices at the earliest
A professional tax advisor in Barkham may also suggest businesses consider sending invoices at the earliest. A considerable number of consumers are solvent enough to pay the bill. However, they cannot do so till the invoices are sent. Delay in sending invoices to these clients will needlessly block a certain amount of cash flow. So sending these invoices at the earliest will remove that blockage considerably.
Making a chart of accounts
As an expert tax advisor in Riseley, I know that failure to prepare a chart of accounts may cost the cash flow dearly. A Chart of Accounts (COA) is a detailed list of financial accounts put up that gives businesses an insight of where the company is spending and making money effectively. Once that is prepared, it becomes easier to restructure the accounts to incorporate more efficiency and give the cash flow a shot in the arm.
Forecasting Cash Flow
Often, a tax advisor in Grazeley suggests forecasting cash flow. Enterprises should take some time to project the amount of money that will come into and go out of their coffers on a weekly and monthly basis before diving into their day-to-day duties.
This should be set for a three-month period, but to provide a better overview, businesses may wish to set it for six or twelve months in the long term. In any case, an accurate forecast of cash flow will make it easier for companies to manage and increase it.
Some other means of improving cash flow may include increasing prices, selling of redundant or old stocks, checking the accounts payable terms, opting for second hand purchases of assets, considering leasing our properties, highlighting late payment penalties, eliminating needless expenses, and running credit checks periodically.
A reputable accounting firm will help you in all these. Biz Accounting Solutions Ltd is one of the best names to turn to for that. Call us to book an appointment with our experts to let us know and discuss your needs. You can also write to us for more information.
