The 31st of January signals tax payments for the sole trade and partnership businesses. It is important to remember that the amount payable at the end of the month is in two parts, a balancing payment on the profits you have returned and a payment on account towards the next period.

These tax liabilities can be based on trading periods that ended up to 21 months ago. This could support the argument that you have had plenty of time to set aside the money for your tax but in times of recession it’s more realistic that recent profits have suffered and reserves of businesses have been drained just trying to stay afloat.

What can you do if you can’t see a way to cover the tax bill that’s looming? One option would be to contact the HMRC’s Business Payment Support Scheme, you can contact them on 0845 302 1435, and enter into a monthly payment arrangement. Full details of this are available on our website.
According to a leading insolvency practice, 215,000 companies have used the scheme leading to support from HMRC of £3.79bn. Seek advice. If you trade as a sole trader or partnership and your taxable profits exceed £25,000 your business tax liability could be reduced significantly by trading as a private limited company.

The decision to incorporate your business can also have an immediate effect on your payment on account that is now due. The payment on account is merely HMRC’s assumption that your taxable profits have continued at the same level. If profits have reduced then discuss this with your accountant and look to reduce your payments on account.

There is also the Annual Investment Allowance which means that purchases of plant & machinery (including vans and other commercial vehicles) currently attract 100% allowance. The effect of this is that if the van cost £10,000 then that’s the amount that profits are reduced by, so you need to think, have you made purchases like this recently? Even if the purchase was not in the accounting period on which you are currently paying tax, they could have an effect on your payments on account.

The most important point I wish to make is that you should take advice, from your accountant and speak to HMRC.


Nick Hunt Partner

Oct 2010 Sherborne Community
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