Managing taxes is one of the many responsibilities of running a business. From personal self-assessment taxes to corporation taxes, the process can be daunting. However, by saving for taxes as you go, we can avoid the last-minute scramble and the stress of finding funds to pay our tax bill.

Why Save as You Go?

Firstly, consistent saving helps us avoid the panic of year-end tax payments. Rather than scrambling to gather large sums at the last minute, we can steadily put aside money, ensuring peace of mind. Additionally, this approach stabilises cash flow, preventing sudden, disruptive spikes in outflow.

Moreover, regularly saving for taxes means we’re always prepared. If our tax bill is lower than expected, we can use the surplus for unexpected expenses or investments. Staying compliant with tax regulations also helps us avoid penalties and interest charges.

Practical Steps to Save as You Go

To start, we need to understand our tax liability by consulting with an accountant or using a tax calculator. Then, setting up a separate savings account dedicated to taxes ensures that funds are ring-fenced and not inadvertently spent.

We recommend saving on a weekly or monthly basis, using a percentage of our income as a guideline. Revisiting our savings strategy regularly, adjusting as necessary, will help us stay on track.

Finally, maintaining accurate accounting records is crucial. Digital systems like Xero can simplify this process and provide insight into our financial health.

Conclusion

Saving for taxes as we go is a smart strategy. It reduces stress, maintains cash flow, and ensures compliance with tax laws. By thinking like an employer and acting like a boss, we can set ourselves up for long-term success. Listen to the I Hate Numbers podcast for more tips on managing your business finances effectively.

One extra responsibility you have as a business owner is managing taxes. Those taxes will take the shape of your personal self-assessment taxes, corporation taxes if you're operating as a company, to name but two. Now this can seem quite daunting, especially if previous to that you've been an employee where your employer has been responsible for taking care of all the taxes.

Now, there is a simple and effective strategy that will make your life much easier, and that is saving for your tax as you go along. You're going to think like an employer, but you're going to act like a boss. In this week's I Hate Numbers podcast, I'm going to be outlining the reasons why you should save as you go along for your taxes and also share some strategies and tips as to how you go about that.

Let's crack on with the podcast.

One benefit from saving for your taxes as you go along is you avoid that last-minute panic, that last-minute scramble to find the money to pay for your end-of-year tax bill. If you're doing a personal tax return and that bill comes out and you suddenly think, ah, where am I going to get those funds from? It can be not only a nasty surprise, but it's going to add to your stress and anxiety.

And I don't want that for you. If you've been saving throughout the year, apart from that look of smugness that you can have, you know that you've got it taken care of. Putting money aside regularly, you avoid that stress. You avoid having to find those large sums of money potentially, at the last minute.

And who would want that stress and strain? This ensures you're not scrambling around to make that deadline. Other benefits, one of them is about cash flow stability. Now, consistent saving for taxes will help you manage your cash flow much more productively. It prevents a sudden surge of outflow of cash, which can be a spike and disrupt your business operations.

Think of it as a steady, manageable expense rather than a huge, unexpected one. There's more, folks. You can build that financial cushion. Saving for your taxes as you go along means you're always going to be prepared. Just like a Boy Scout would be, you're a Boy Scout in your business for your taxes.

If your tax bill is lower than expected, excellent. You'll have a financial cushion, and that additional money can be used for unexpected expenses, investment opportunities, give yourself peace of mind, reward yourself, or you can put that towards your next set of obligations. There are more benefits. Let me share a few more with you, folks.

You can stay compliant, and you can avoid interest and penalties being levied on you from the tax authorities for being late. Late or missed tax payments can result in harsh penalties, and also interest will be due the moment your payments become late. By saving regularly, you ensure that you've always got the funds to pay your taxes on time.

This helps you stay compliant. With not only the tax rules, but it also means you avoid those unnecessary costs, those unnecessary interest and penalty charges. You can simplify your accounting, and putting that money aside on a regular basis simplifies the accounting process. It makes it easier to track your finances, know what your business health is like in reality.

Because you're taking into account all the outflows, what all the money is going to be used for. And you can see at a glance how much money you have available for the other expenses and investments. Now folks, before we dive into the practical steps, let me share two more advantages and reasons for saving for your tax as you go along.

Business planning is improved, and when you've got taxes that you're saving for on a consistent basis, you get a much clearer picture of how your business is performing. This allows you to plan for the future. You can make informed decisions about expanding your business, hiring more staff, giving yourself more rewards and why not, and investing in opportunities that are out there for you.

Saving your taxes also helps you think like an employer but act like a boss. It's the responsibilities that your employer would take on, but you're acting like that person who's responsible for the outcome of your business. It shows you're serious about the health of your business, and this professional mindset inspires confidence in yourself, which is great, but also those around you.

Having outlined the reasons for doing this, what about some actual practical steps that we can implement to save for tax? Well, step one, or practical step one, is to make sure you've got an understanding of what that tax liability will look like. You can work out roughly how much tax you owe based on your income and expenses, and by all means talk to your accountant or tax advisor, who can help you with this.

We help our clients come up with an estimate of what their tax liabilities are. If you want to, check out our show notes, and you can tap in to a tax calculator that can estimate what those figures will be. So you've got a whole suite of resources there to help you. Practically speaking as well. Set up a separate bucket, a separate savings account, just for the money for your taxes and obligations,

and this taken out of the day-to-day bank account, ring fence those funds, have them in a separate account, and it reduces the temptation to spend the money, but also means you don't overinflate the money that you've got to spend in running your business. Now, save on a regular basis, folks, absolutely a must.

Now you've got two things to do here. You can do it on a weekly or monthly basis. If you wish to do it quarterly, I would recommend weekly or monthly. Put money aside to take care of the tax. One other thing that I recommend to clients is to take a percentage, depending on the level of expenses you've got, and apply that percentage to every 100 pounds or 1000 pounds that you invoice clients.

So if you do a 1000 pounds worth of work, you might, for example, levy a percentage of 10%, and 10% of that goes into a separate pot. Every time you figure out what that figure should be, every time you decide to transfer money, do it, commit to it, and keep up with it. Do it weekly, monthly, or quarterly.

Again, I would recommend either weekly or monthly. Revisit your savings, what you're putting aside. If your fortunes have changed and fluctuated, income has gone up, income has gone down, expenses have changed, then adjust the savings accordingly. And again, tap into the expertise of your accounting team.

Your accountants modify and adjust, but make sure you've got enough aside to cover that tax bill. Set up a standing order with your bank and do an automatic transfer to your savings account. You can certainly rely on your memory to do a transfer. If you're doing that on a turnover percentage, then obviously you need to execute that transfer.

You may set up an estimate, do a standing order so you don't have to remember it, you don't forget, and it helps with that discipline. Now, fundamentally, folks, one other last practical step is to make sure you've got good positive accounting records. Digital is best in my experience. Check out the show notes for a link to Xero where we can help you set up a digital system, but whatever you do, make sure you've got good records, a good ecosystem that can capture your income and expenses.

Not only does this help you in estimating your tax liability, but make sure you factor in all the appropriate expenditure. Insight and clarity is based on good records. So what can we conclude? Well, my conclusion, folks, is saving for your tax as you go along is dead smart. It helps you avoid last-minute stress (Who'd want that?),

maintain a stable cash flow and stay compliant with tax regulations and tax laws. It simplifies your accounting, improves your planning, and creates that positive and professional mindset. Being prepared for your taxes is always going to be a good thing. Think like an employer, act like a boss, take control of your finances, and set yourself up for success.

Happy saving, folks. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.