Autumn tax season can be awkward for SME owners, especially for those growing or pushing themselves to export to new markets in the New Year. Even after doing the paperwork and procuring a good accountant, your tax bill may yet surprise you. As you know, working capital can dissipate quickly just when the tax bill arrives. Where then will you get the cash to pay? In this week’s blog we explain how a P2P loan can prevent this seasonal headache for your business and its operation.
1. Be Prepared
A good SME owner always ensures finance is in place to smoothly run their company. A balanced payment of invoices will enable any business to operate at optimal capacity.
Indeed cash flow is the lifeblood of any SME business. The latest Central Bank of Ireland’s SME Market Report showed that 38% of credit applications in the preceding year were for the purpose of providing working capital. Needing working capital lending to keep your business in good shape is inevitable, particularly when it comes to opportunities for growth. When you have limited cash flow, you have limited business opportunities. Having to pay a tax bill instead of capitalising on an opportunity to grow your business will leave you kicking yourself.
If you make a late payment, of any taxes due, you will be charged interest from the due date to the date when your payment is received. Only lack of good planning is to blame for this unpleasant outgoing expense. So make sure you don’t add to your costs by planning your cash flow more carefully.
2. Late Consequences
You pay Preliminary Tax, an estimate of tax due for your current trading year, 31 days before the end of your accounting period each year and make a tax return for the previous year not later than 31st October. The advantages of paying on time means that you will avoid the following negative consequences:
- Revenue’s rates of interest on underpaid tax (approximately 8% per annum on direct taxes and 10% on other taxes) are higher than commercial borrowing rates;
- Penalties may also be applicable. Furthermore, the interest charged by Revenue on tax underpaid is not a tax deductible expense.
Adding to the pressure further is the deadline for pension contributions also on 31st October. If your bill is larger than anticipated, or if you are perennially playing catch up, then the options appear limited. What you don’t want to have to do is delay investing in the business or on pension contributions, or both. What would the point be? Even if you do, another tax bill is due in twelve months time…
3. P2P Benefits
A year-long loan with twelve monthly payments could be a less expensive way to finance the tax bill, meanwhile freeing up earnings for day-to-day business operations and opportunities. Other benefits include:
- Not having to pay Revenue’s rates of interest on underpaid tax and penalties which will amount to more than the interest and fee on a P2P loan;
- Having more control over upcoming costs, you can remain focused on long-term growth;
- By spreading the cost of the tax bill into more manageable monthly payments, your tax becomes an integrated part of your financing plan rather than an inconvenience;
- What’s more, with that comes the peace of mind that a lump sum payment means you don’t have to worry about tax for another year, freeing up your capacity to plan and act on your long-term commercial goals. You will have everything ready, including your Tax Clearance Certificate, when you apply for new credit.
Adopting a P2P loan plan on an annual basis is not unusual. The main advantage is that cash can be used in its most productive and strategic manner to achieve the long-term growth that your business deserves. Not to mention building a finance relationship with a lender making future financial support more likely for other ambitious projects.
Indeed there is no better way to energise your business than to create a financial space to facilitate your ambition to grow. So, why not try a P2P loan to facilitate your business this tax season?
At Linked Finance, we’ve supported thousands of ambitious business owners to quickly access up to €300,000 in 24 hours…