Where's Your Tax Money?
Where’s Your Tax Money? A Simple System Every Business Owner Should Use
One of the biggest causes of financial stress for business owners isn’t receiving a tax bill.
It’s realising the money to pay it has already been spent.
Whether you’re a sole trader, landlord or company director, one of the simplest ways to stay in control of your finances is to separate your tax money from your everyday business cash.
At Blackdown Accounting, it’s a system we regularly recommend to clients.
Why your bank balance can be misleading
It’s easy to look at your business bank account and think:
“I’ve got plenty of money.”
But not every pound sitting in your account belongs to you.
Some of it may already be owed to HMRC.
This could include:
VAT you’ve collected from customers.
Corporation Tax on your business profits.
Personal tax on dividends, rental income or sole trader profits.
Treating all of your bank balance as available to spend is one of the most common causes of cash flow problems.
Lisa’s Three Tax Pot System
One of the easiest habits you can build is to open three separate savings accounts.
VAT Pot
Transfer the VAT you’ve collected into this account as you receive payments or at regular intervals throughout the quarter.
Remember, VAT isn’t business income. You’re collecting it on behalf of HMRC.
Corporation Tax Pot
Transfer around 20–25% of your monthly profit into a separate account.
This doesn’t have to be exact. It’s simply a sensible starting point to help ensure most of your Corporation Tax has already been saved by the time it’s due.
Personal Tax Pot
If you complete a Self Assessment tax return, transfer 20–30% of income that hasn’t already been taxed through PAYE into a separate account.
For many company directors this will be dividends, but it could also include rental income or sole trader profits.
Again, the percentages don’t need to be perfect. The aim is to build a habit that keeps you ahead of your tax bills.
Why this works
Keeping your tax money separate has several benefits:
You always know how much is available to spend.
Tax bills become far less stressful.
Cash flow improves because you’ve already planned ahead.
It encourages regular financial reviews rather than last-minute panic.
It’s a simple system, but one that can make a significant difference to your financial confidence.
Making Tax Digital makes good bookkeeping even more important
As Making Tax Digital for Income Tax is introduced over the coming years, good bookkeeping and regular financial reviews will become even more important.
Businesses that already keep accurate records and understand their numbers will find the transition much easier than those trying to catch up at the last minute.
Good bookkeeping isn’t just about compliance.
It’s about making better business decisions.
Need help getting organised?
At Blackdown Accounting, we help businesses across Sidmouth and East Devon with:
Bookkeeping
Accounts
VAT Returns
Self Assessment Tax Returns
Corporation Tax
Making Tax Digital
Business advice and financial planning
If you’d like to feel more organised and confident about your business finances, we’d be happy to help.
