Managing Your Cash Flow to Pay Corporation Tax on Time

shutterstock_106178708.downloadCorporate Taxes are an important component of revenue for the Government. Most companies which derive profit from their operations are supposed to pay corporate taxes. Paying corporate taxes on time is a very important thing for a business. For a small business, it indicates credibility and trustworthiness. Paying corporate taxes on time improves credit-worthiness and may reduce cost of borrowing. Companies which pay corporate taxes regularly are usually given preference for any potential subsidies and reliefs provided by the government. For large companies listed on stock exchanges, paying corporate taxes on time improves the overall image of the company and helps in maintaining better relationship with shareholders. This also improves the reputation of the company among other stake-holders such as suppliers, customers, employees etc. Please consult the HRMC Department Contact for more information on corporate taxes in UK.

Cash-flow management is very important to ensure timely payment of corporate taxes. Sound cash-flow management will ensure that a company pays its corporate taxes on time and avoids hassles and penalties associated with payment of corporate taxes. Cash-flow management essentially involves managing cash and maintaining a balance between payable and receivable. Payable are aspects which are to be paid to stake-holders such as employees, suppliers, etc. Receivable are usually associated with cash to be received from customers, government etc. A company which manages payable and receivable is usually less likely to run into cash-flow problems. Hence such a company is more likely to pay taxes on time and avoid unnecessary trouble.

Working capital management is also a component of cash-flow management. Working capital is the capital required by the business to manage day-to-day operations. Working capital is defined as the difference between current assets and current liabilities. Cash and cash-equivalents, Inventory etc. are part of current assets. Current liabilities include liabilities which are to be fulfilled in less than 1 year. A company with more debt usually has higher cash-flow commitments in terms of interest payments. A debt-free company on the other hand usually has lesser problems with cash-flow. Hence it is important to manage cash-flows considering any interest or principal payments which are due in the near future. It is also important to keep debt or borrowings at manageable levels. Since the corporate taxes are applied on the net profit, this may not be a major aspect of concern for most companies. However, if the management thinks that there could be an improvement in cash-flow management by debt restructuring, they can approach the lenders and check their options.

Companies have many things under their control. In case of public companies, they may choose to skip a dividend payment if they foresee any major problems with cash flows. Companies may also reduce capital expenditure and other administrative costs if they think that their cash-flow management is not accurate. Hence, the most important thing is appropriate planning and earmarking funds for tax payment. It is always advised to pay corporate taxes on time and never try to evade taxes.

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