The True Culprit Behind Business Woes: A Misunderstanding of VAT and Tax Planning

The True Culprit Behind Business Woes: A Misunderstanding of VAT and Tax Planning

"Nothing is certain but death and taxes" - Benjamin Franklin

In a world where the excitement of revenue often overshadows the nitty-gritty of financial management, a startling reality is coming to light: It's not VAT that's threatening the vitality of businesses; it's a lack of planning for it.

Today I responded to a post about recent outcry from a business owner lamenting about how VAT is "killing" their client's ￡1.8 million revenue business, and their response made me worried.

This isn't a VAT issue; it's a planning and mindset issue. VAT, or Value Added Tax, is not an enemy lurking in the shadows; it's a fundamental aspect of doing business, especially within the UK. This tax isn't meant to be spent but collected on behalf of the tax authorities, from the customer directly.

Understanding and Planning is Key

The crux of the matter lies in understanding and planning. VAT collected from customers should be immediately earmarked for its purpose, not seen as available working capital. This misunderstanding leads to the false perception that all incoming funds are at the business's disposal for reinvestment or operational expenses.

For self-employed individuals and entrepreneurs, the principle remains the same. A portion of your revenue should be allocated for accounting fees, National Insurance, and income tax from the get-go. This proactive approach ensures you're never caught off guard when these obligations come due.

Proactive Financial Management

The mindset shift required is profound yet simple: Not all money in is yours to play with. Every penny earned should have a designated purpose, be it operational costs, taxes, or reinvestment into the business. This disciplined approach to financial management is what separates thriving businesses from those constantly battling to stay afloat.

Benjamin Franklin's words, "Nothing is certain but death and taxes" resonate deeply here. Taxes, including VAT, are a certainty in the business landscape. Ignoring them, or failing to plan for them, is akin to setting a trap for your own enterprise.

Conclusion

In conclusion, the key to overcoming the so-called VAT challenge is not to lament its existence but to embrace it as part of your business model. Understand it, plan for it, and allocate funds accordingly. This shift in perspective from seeing VAT as a burden to recognizing it as an integral part of your business's financial landscape is crucial for growth and sustainability.

Let's foster a culture of financial literacy and proactive planning. After all, the true power of a business isn't just in generating revenue; it's in managing it wisely.

Embrace Professional Advice

Each business's journey is unique, making tailored financial advice indispensable. A professional can devise a strategy that aligns with your specific needs, optimising your financial health and ensuring compliance. Investing in expert guidance is not an expense but a crucial step towards sustainable growth.

Where to Go...

Ultimately anywhere you feel comfortable.

I'm happy to have a chat with you on a no obligation basis and sign post you to where you would best be suited. I'm not on commission. I don't need to onboard you as a client. I just want you to start the conversation with someone. Happy for it to be me but go where you are recommended and with whom you trust.

I won't charge you for a conversation by the way. If in doubt, send a message.

Disclaimer:

This article does not constitute advice