One of the most common problems we see with business owners is the “surprise tax bill.”
Everything feels fine throughout the year. The bank balance looks healthy, cash is flowing and then suddenly the tax bill arrives… and it’s much bigger than expected.
The problem usually isn’t the amount of tax.
It’s that they don’t set the money aside along the way.
Let’s fix that!
Why the Surprise Happens
Most business owners are focused on running the business day-to-day. Sales, team members, suppliers, customers – they all demand attention.
Tax, on the other hand, tends to sit quietly in the background until a deadline appears.
But the reality is simple: tax builds up every single month.
Whether you’re a sole trader or running a limited company, things like Corporation Tax, Income Tax, VAT and National Insurance are accumulating as your profits grow.
If you’re not setting money aside regularly, it’s easy to spend cash that actually belongs to HMRC.
A Simple Rule of Thumb
Every business is different, but as a starting point we often suggest setting aside between 20% and 30% of your profits each month.
Here’s a rough guide:
- Sole traders: around 25–30% of profits
- Limited companies: around 25% of profits (for Corporation Tax)
- Shareholders personally: depends on your dividend tax rate 10.75% basic rate dividends or 35.75% for higher rate dividends or possibly more
- VAT registered businesses: remember that VAT collected isn’t your money — it needs to be set aside.
This doesn’t replace proper tax planning, but it could give you a safety buffer and could avoid nasty surprises.
The Best Habit You Can Build
The most effective system is also the simplest.
Each month:
- Work out your estimated profit.
- Transfer the tax percentage into a separate tax savings account.
- Leave it there until the tax bill arrives.
That way the money is already waiting when you need it.
No panic. No last-minute cash flow stress.
Where Good Bookkeeping Makes a Huge Difference
This is where up-to-date bookkeeping becomes incredibly valuable.
If your numbers are always several months behind, it’s almost impossible to know what tax you should be setting aside.
But when your books are current, you can see:
- Your real profit.
- Your estimated tax liability.
- How much you should move into your tax account.
If you haven’t already read it, our blog Unlock the Power of Bookkeeping explains how better bookkeeping gives you far more control over your numbers and removes a lot of the financial guesswork.
A Quick Reality Check
Let’s be honest for a moment.
If you regularly reach tax deadlines thinking “where on earth am I going to find that money?” — it’s usually not a tax problem.
It’s a cash management habit problem.
The good news?
That’s completely fixable with the right systems and a bit of discipline.
And once you get into the routine of setting tax aside monthly, business suddenly feels a lot less stressful.
Final Thought
Your tax bill should never be a surprise.
It’s simply the result of profits you’ve already made.
The goal is to make sure the money is waiting for it.
If you’d like help getting clearer on your numbers and planning ahead for tax, get in touch with GreenStones.
We’ll help you understand what you should be setting aside, improve your bookkeeping systems and make sure tax never becomes an unpleasant surprise again.
Give us a call on 01733 371180 or email the team at advice@greenstones.co.uk. We’re happy to help.