Paying corporation tax (CT) and value added tax (VAT) is an unavoidable element of running a successful business. As an accountant there’s plenty your firm can do after tax submission to help time-poor and cash-strapped clients manage these regular quarterly tax payments – and, by doing so, maintain a positive cashflow position and a healthy balance sheet.
In fact, by looking for the right contextual triggers, it’s possible to use tax advice as a conversation starter for a multitude of added-value projects around cashflow forecasting, funding advice and longer-term strategic financial planning.
Spotting the challenging tax periods
As we outlined in Part 1 of this series, the Christmas slowdown in December can result in a tricky period for many business-to-business (B2B) companies.
For a B2B client with an April year-end, poor revenue in December is then immediately followed by a quarterly CT bill in January and a VAT bill in March – creating a triple-whammy of events that serve to create cashflow issues and a lack of funds to cover those tax payments.
The irony here is that none of these tax events are unexpected or sudden. CT and VAT payments are wholly predictable, with the tax cycle dictated by the client’s choice of year-end. So, if these payment dates are entirely predictable, there’s an opportunity for your firm to look for these tax triggers and instigate preventative measures to lighten the impact.
Tax as a contextual trigger for cashflow and funding conversations.
As we know, business tax payments follow a cycle – with the company’s year-end date defining the months in which their CT and VAT payments will be due.
If your firm is involved directly in providing monthly/quarterly management accounting for your clients, or delivers outsourced VAT services, then you’re in a prime position to spot the contextual tax triggers. Using the grid above, you can quickly spot when large tax payments are about to leave the business, and the impact this will have alongside the usual day-to-day operational costs and overheads.
By analysing and highlighting these trigger points – January and March for our example April year-end client – you can:
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Highlight the cash pinch point to clients – so the owner, executive team and finance director are aware that certain months will be ‘tax high and cash low’.
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Start conversations around cashflow management – so clients can get more proactive about managing their tax liabilities and achieving a healthy cashflow position
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Look at funding routes to explore – if there’s a discernible funding gap coming up prior to a tax trigger point and payment due date, you can assist clients in accessing the funds needed to settle their tax bill.
Having the skills to pay the VAT bills
As every accountant will know, VAT is charged on revenue. Therefore, despite being quarterly, it’s a larger tax obligation than corporation tax – which is taken only from the profits of the business, and (currently) on an annual basis.
Paying VAT shouldn’t, in itself, be a problem. After all, the amount of VAT the client has to pay is the net between the VAT they’ve charged and the VAT they’ve paid in costs whilst running the business – so the money should be there, in theory.
Paying the quarterly VAT bill only becomes a problem when a business is having a slow period; i.e. summer or Christmas, depending on the seasonality of the client’s sector. It’s this prolonged drop in revenue and the lack of available liquid cash across a seasonal period that really puts the tax cat amongst the cash pigeons.
Enhanced insight into your client’s financial health
Looking into when VAT and CT tax bills are due gives you a starting point for cashflow and funding conversations with clients – but there’s an additional benefit alongside this. You also gain a far clearer idea of how each client’s business is tracking.
Prevention will always be better than cure when it comes to solid business and finance advice. By using the quarterly tax bills as an insight into the wellbeing of the business, you can get in front of any potential tax issues, access the right funds and help clients to proactively improve their working capital and cash position.
Building stronger balance sheets
At Capitalise, our aim is to partner with the UK’s leading accounting firms, providing your business clients with access to simple, straightforward routes to funding.
To help your firm increase your funding advisory services, we give you the tools, education and support to work more closely with your clients. So, when quarterly VAT costs become an issue, we can connect you with a growing ecosystem of finance providers. This gives your clients access to VAT loans and finance that pays their tax bills and helps them to build strong and robust balance sheets for the future prosperity of their company.
