Are you looking for some help with Tax and Business Financial Planning? It can be intimidating to figure out on your own, don't struggle alone. My I Hate Numbers podcast is here to make it easier for you.

When building a business financial plan, tax must be considered. Tax is an expense just like any other, so it’s essential for us to consider the amount, as well as all the various variables that come with it. Furthermore, not doing so could lead to major problems down the line if we ignore tax considerations.

Fortunately, this weeks I Hate Numbers podcast covers the approach you need to make when dealing with Tax and Business Financial Planning

Conclusion and good to know

The I Hate Numbers podcast isn’t just about taxes though.  Other topics are covered, for example cash flow management, budgeting, forecasting, debt management and more! Every episode provides actionable advice from experienced professionals who explains complicated concepts in an easy-to-understand way.

I understand that dealing with finances can feel overwhelming at times but don’t let that stop you from taking control of your finances! Tune into my I Hate Numbers podcast today where we provide vital information plus practical advice in a fun way!

It's vital that you consider tax as part of your business financial plan. You gain a lot to be gained by understanding the taxes involved and considering the timing and attitude to tax in your business.  You can ensure that you're making sound decisions for the future of your company. If you need help with this process, please don't hesitate to contact me. I'd be happy to advise you on how to build a solid financial foundation for your business.

Tax and building your financial plan is as natural as a Horton carriage, gin and tonic, pizza and pineapple. Well, perhaps the last one we can question. When you build your business financial plan, when you are forecasting into the future, then it's vital that tax is considered as part of the mix. Tax is a cost just like any other business expense that you have.

And it's really critical that we consider not only the amount, but we consider other variables that are going with tax as well. If we ignore tax, we ignore that at our peril, our forecasting is gonna be askew, it's gonna be incorrect, and it could end up creating problems into the future, and we don't want that.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. Welcome to another weekly episode of I Hate Numbers. I'm your host, Mahmood. I'm the founder, director of the accounting firm I Hate Numbers. What a name. Also founder, director of the Financial Storytelling Platform Numbers Know How and author of the book, I Hate Numbers. For over 27 plus years, I've helped thousands of business owners make more money in their businesses, save tax and time, increase their financial awareness, and help them win more battles than they lose with what goes on between their ears.

And I want that for you. Let's crack on with the podcast. Now, if you are thinking at this stage, Mahmood, I'm not a tax expert and I don't actually appreciate all the minutia or the details attacked, then worry not. There's a couple of immediate options to bear in mind. Number one, access and speak to your accountant.

Speak to your advisor. They can actually do the minutiae of the detail, but that's not really vital for a business financial plan. The other thing to bear in mind is when we forecast into the future, there is a level of detail that we may not have access to, but more importantly is to be conscious and aware of those costs and tax.

As I said at the beginning of the podcast, Is a cost like any other cost, like wages and rent, cost of buying in materials, hiring freelancers, and marketing cost. It's a cost. It involves money going out of your business. And occasionally it involves money coming into your business. So that's something that we need to bear in mind.

Now, where do we start? Well start number one is to be aware of the different ranges of taxes that will apply. Now, most of us will be operating in an environment where taxes are gonna be levied pretty much every single point in our business cycle. There are two types of taxes that we have to consider. I would group them, first of all, into what are called indirect taxes and direct taxes.

Indirect taxes, commonly cover things such as duties and VAT. So if you are purchasing goods from overseas, then you'll have duties that are likely to be levied on the importation of those items. And perversely, if you are exporting goods, there may be duties also levied on the export. So be aware of what they are.

And at this first stage, we're merely identifying what the potential taxes can be, and then we need to factor that and structure that into our forecasting. Other indirect taxes are VAT. Now, VAT is a tax that's charged by businesses that are registered with VAT. And again, if you check the show notes here, I'll give you a link to some background videos and resources and podcasts that you can explore to find out more about this subject.

Now, if you are registered for VAT, you will be charging VAT on your goods and services. Again, what you'll be charging whether they're import or exports is a secondary consideration. But we can also build in some assumptions when we look at VAT. At this early stage, we're just being conscious of what's going on.

Now, VAT will be charged by you. And if you're not already registered for V A T, you need to be aware when you build your forecast, cause there may be a point in the future where your sales will be such that you have to register for VAT in the future. The other types of taxes that we have will depend on the nature of our activities. So if we are employing staff,

then there will be a variety of taxes to consider. There will be, in the UK what's called Employers National Insurance. Again, it'll be affected by things such as employers allowance. If you've got profits that you're generating, you're likely to have corporation tax that will arise. If you're operating by the way, folks, as a individual, as a sole trader, a partnership, then your line is to have tax on those profits, and it'll be called income tax. Countries outside of the UK,

for those operating through LLCs or companies, will typically have something called income tax, which is a perverse term, but that's based on the company profits. Now, other taxes that will be built in, if you're likely to be disposing of any items in the future, any assets, there may be something called capital gains tax.

And again, all we are doing is building a framework of what those potential taxes are. Make a list and then with that list, we can then move on to the next stage. The next stage is considering the rates that will apply. Now, when you are building your forecast, say, when I worked with clients on a one-to-one basis, the minutia, the details I can take care of, but it's important in that first stages, having identified the taxes, is to then

figure out how much we're gonna be paying. And what I would normally do is to come up with a range of rates. So typically if you are looking at employment, if you're taking on staff, you've got staff currently, you are looking to take on staff in the future, then you may apply an average rate for employer's taxes.

Typically as a guidance for the UK, I would typically go for a range between 5 and 10% of employment national insurance to add on top of the cost of the wages. Again, the finer details will depend on the mix of staff that you've got will depend on the levels of salaries that you are paying them and what the current rates are being charged by the government, and any allowances and benefits that you'll get for taking on staff.

Again, what we need to consider at this stage is what is the tax that's relevant? What's the assumption we're gonna be making and what percentage rate are we going to be applying? We're looking at tax on your profits. Again, take into account the expenses that you're likely to have, and you may just apply as I would recommend a flat percentage across the board.

Now, the key thing is the accuracy of the forecasting you may be worried about, but if you've got a reasonable percentage factored in there, that will take care of that, and it identifies that that cost is likely to be met at some point in the future. The third consideration is timing. When does that tax that you've collected or paid over have to leave your business and go into the hands of the government?

The exchequer, the revenue services. In the UK, we call that HMRC. Now certain taxes have got certain timings attached to them. So as a general rule, with majority of companies registered for VAT tax will be physically paid on a quarterly basis. Some businesses can register to pay VAT on a monthly basis.

What I would recommend when you're building your financial plan is to have that as an outflow. If that's the case with money you are collecting from customers, the amount of VAT you are offsetting is such ending up paying VAT over to the government to H M R C, then I would have that in your cash flow coming out on a monthly basis.

That can go to a separate account. Again, what you've identified is you are seeing the true cash flow that you're generating. Some businesses what they will do, they'll time that and just to come out on a once a quarter basis. What fits right for you is what you need to do. I will just pause here folks and say, when you're building your forecast, I would recommend that you use a wonderful online tool like we have at Numbers Know How.

That will help you build in and factor in all the range of costs as well as tax as well. Let's get back into the podcast. So we've dealt with the types of taxes we have, the names of the taxes, we've talked about, the rates that we're gonna be applying. Averages are perfectly acceptable. The key thing is to build something in.

We can with those ranges, by the way, build in sensitivity. We can build an arrange and the power of doing something with an online tool is that you can vary the flexibility of that and we can see what the impact will then be. We've looked at the timing. When does that tax leave the company? Again, one way is to look at it.

Leaving the business on a regular monthly basis, bring it to one side, or if you wanna be belt and braces factor in the timing, it's got to actually physically leave the company. What I would certainly do is to isolate that as a separate section below your operating performance. Now the last consideration is the role of tax in your business.

Now, tax is as a consequence of generating profits. It's as a consequence of taking on employing staff. It's as a consequence of buying goods and services. It becomes very protracted and very difficult to avoid it completely. What we must be careful of is not to let tax dominate our thinking. Unless you occupy a high tax leving jurisdiction where the majority of your income is subject to tax and it's tax at a very high rate, the tax is certainly a cost we'd like to minimize, but if we're gonna generate value,

and the tax that we have to pay is such that we still keep a proportion, a good proportion of that value. Then it's a worthwhile consideration. Don't not do something. Don't restrict your ambition. Don't restrict your growth purely because you don't wanna pay tax on that. That's not a very sensible way of looking at it.

By all means, bring in your advisors, bring in your accountants to help understand once you've got your forecast where you can minimise tax where you can see opportunities to reduce it legitimately, that's perfectly acceptable. That's called tax avoidance, and that's something that I've done for the last 30 plus years.

So planning your affairs that will come from a financial plan is a natural bedfellow to reducing tax liabilities. So let's summarize where we are, folks. We've talked about identifying the types of taxes that we have, build that into our forecast, identify them by description, come up with an idea of what those rates will be, how much we're gonna be paying.

And again, talk to your accountants, talk to your advisors, and factor in a reasonable percentage that we can change if we need to, to see what the impact will be. Typically, for most taxes, our level of sales activity, our business activity influences the tax that's gonna be paid. Thirdly, consider the timing.

When does that tax flow coming out of the business occur? And there may be situations where tax refunds come back into the business. And lastly, don't let tax dominate your framework of thinking. Certainly tax is a cost. We wanna manage that cost and minimize it accordingly. But if you generate more value, you generate more sales than tax exposure, it's likely to increase as a result.

Folks, I hope you found this useful. If you have, I'd love you if you could subscribe, leave a comment, give me a thumbs up. What do you think? Do you build taxes in your forecasting? There are people out there that you think can benefit from listening to I Hate Numbers, I'd love it if you could recommend it and ask them to have a listen.

Until meantime, folks don't have nightmares. 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.