When delivering my ‘Be Fabulous at Finance!’ workshops for small businesses, I discuss with the group what Indiana Jones can teach us about managing our tax affairs. This may seem a strange link! However, the majority of you reading this will know that Indiana Jones would hunt for and discover precious artefacts or jewels. Once retrieved, after usually some considerable battle, he would guard the precious artefact with his life until it was safely delivered to the museum for all to learn from and enjoy.
This is not dissimilar to running a business! It can be somewhat of a battle – hopefully a fun one – to grow and develop a business and obtain customers and clients. When earning sufficient to pay tax, putting the money to pay for it to one side should be treated in exactly the same way as Indiana Jones protecting his precious jewels – protect this money with your life! It is not yours, it is to deliver to HMRC at the appropriate time in much the same way as Indiana would safely deliver his precious cargo to the museum.
For those of you who are VAT registered, treat money received for VAT in exactly the same way. The VAT you receive from your sales invoices is not yours, never has been yours and never will be yours. Siphon the VAT portion off into a separate bank account immediately you receive the funds and ensure this account is not touched under any circumstances other than to pay HMRC at the appropriate time. You are Indiana Jones and must protect these funds at all costs!
Taxes are so much easier to deal with when you are employed – they are simply deducted from your pay packet and you don’t need to think about it. However, once self-employed, greater discipline is required to take the steps above.
I make light of a serious topic. The consequences can be very serious indeed if you do not take paying your taxes seriously. I have personally witnessed people getting into difficulties by not siphoning off and protecting the money to pay their tax bill, which has included HMRC knocking on their door to possess assets to pay off the unpaid amount.
With regards to calculating the amount to siphon off, I simply move 30% of my profit for the month into a separate account. This should always ensure I have more than enough to pay the tax bill when it is due. Usually, I have a bit of bunce left over – my reward for being good! This can be used for a treat or to get a head start to next year’s tax bill – you choose!
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