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Setting aside money for tax bills

readerreader Experienced MentorMAAT, AAT Licensed Accountant Posts: 1,042
Hi

Theoretical situation, one man band limited company:

Let's assume only a VAT and corporation tax bill, i.e. no PAYE and self assessment bills.

How much would you advise the client to set aside each month.

I understand that this will vary based on net profit margins, flat rate scheme VAT, service sector or trading in goods, profitable or loss making, etc. But I was just wondering if there is a standard figure to advise client, i.e. a % of money coming in that they should set aside (maybe by transferring this amount into the company's deposit account).

I was thinking of around 20% and then amending this figure as each quarter's VAT return/management accounts is done.

Any ideas?

Comments

  • JodieRJodieR Experienced Mentor Registered Posts: 1,002
    Totally depends on the type of business. You'll have to look at historical figures and/or forecasts to be able to calculate this as everyone's different.
  • jamesm96jamesm96 Experienced Mentor Registered Posts: 523
    I have a couple of clients who are exactly as you've described. They both put all of the VAT the charge into a reserve account, and they both set aside 20% of their fees to cover CT.

    It's always too much, but they're perfectly happy with their drawings, and every time they prepare a VAT return or when the CT600 is done they have a bonus that they can draw.
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    jamesm96 wrote: »
    I have a couple of clients who are exactly as you've described. They both put all of the VAT the charge into a reserve account, and they both set aside 20% of their fees to cover CT.

    It's always too much, but they're perfectly happy with their drawings, and every time they prepare a VAT return or when the CT600 is done they have a bonus that they can draw.

    Going off topic slightly, there should be enough money put aside for tax and for working capital for the business.

    Frustrating working with some small one man bands that treat their gross profit as a wage!

    They think they're doing well, but then struggle to pay tax, need to buy new vans on credit etc...
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