Separate business 'savings' account to hold tax payment money?

[Taxed]

Hello,

I'm having trouble keeping 20% in the business account to save for the end of year tax payment.

Is it possible/common for people to have a side account for keeping the 20% 'protected' from going out of the account (as expenses etc)?

I'm with Natwest for both business and personal. As part of my personal account there, I can quickly open a separate basic account and put money in there to save it.

Is this sort of thing possible with a business account or is going to get messy having an extra account and money going between them? I'm not looking for savings rates or anything like that, just a place to stick £1000 each month to keep it safe for the end of the year.

If there isn't enough money in the business account at the end of the year, I understand the corp tax has to be paid from a personal account and accounted for as a loan? Is this correct and are there any downsides/implications to doing this?

Would it be wrong to take the 20% from the business account and put it in a personal bank account for safe keeping?

What's the best way to approach this?

Thanks.

 

[Louisa@AardvarkAccounting]

Yes, it's quite common that most businesses will have a current and savings account, both in the business name.

You should be able to set up a business savings account, as easily as setting up a personal savings account.

It shouldn't get messy, as the transfers between accounts will offset one another. You will only need to make sure that any interest earned from the savings account is included within your accounts. Plus, when you prepare the year end, you will have the balances of both the current and savings accounts as part of your bank balance on the accounts.

If the company does not have the funds to pay for it's liabilities, you can discuss with HMRC about repayment terms but interest will be charged on late payment. Therefore if you do have the funds personally, you can lend these to your business for the company to pay it's taxes. This will be shown as a loan to your company and can be repaid back to you personally at any time, without any personal tax implications.

I would not advise taking any company funds and putting these into a personal account, even if you are only setting this aside for company taxes. As this could be seen as you personally taking money from the business, perhaps as a dividend and being taxed on this. Therefore instead, I'd recommend getting a savings account in the company name and popping all of your tax provisions within the account.

 

[TheCyclingProgrammer]

Are you self-employed or do you run a Ltd company? If the former, then you can set the money aside in whatever account you want really. If its the latter, then as the money belongs to the company it should only be put into a company account. HSBC provide a business saver account as standard with their business accounts (it doesn't really earn interest though).

 

[MyAccountantOnline]

It's certainly good practice to set aside money for tax but no not everyone does.

You refer to Corporation tax, and tax at 20%, so you must ensure that the savings account is held in your company name if you wish to avoid potential issues with directors loans; generally if money is transferred to an account in your personal name it is a loan to you from your company which can create tax charges.

 

[TheCyclingProgrammer]

My advice would be: rather than worrying about the bank account the money is deposited in, budget based on your books, not your bank balance.

If you use software to maintain an accurate picture of your books and taxes you should always have a reasonably accurate idea of all outstanding liabilities, your turnover, profit and distributable reserves. Base any spending decisions on *that*, not what is in the bank account (and of course any dividends MUST be based on company net profits and distributable reserves).

This is equally good advice IMO for personal budgeting. I use personal budgeting software (YNAB) and the actual location of my cash is largely irrelevant. A chunk is in my savings account, some in my current account, some in a joint account. I only spend money based on what is in my budget, not what is in my bank account. The only time I need to worry about my current account balance is to make sure I keep enough money in there to cover my regular standing orders/direct debits and any general spending I make on my card.

Spending based on your bank balance is recipe for disaster IMO.

 

[hairymonster]

Aldermoe are a good bank for what you require