CAN YOUR CLIENTS AFFORD TO PAY THEIR PERSONAL TAX BILL?
The accountancy profession has done an outstanding job over the last few months. There has been a phenomenal push to help on funding solutions, furloughing, tax deferral and rewriting the business cashflow forecast for the next 12 months.
However, how many accountants have dug a bit deeper and asked their clients about whether they will be able to pay their personal tax bill?
It’s a tricky one. The SME is the one that pays most of the accountant’s bill and the effort over the last few months has been all about getting enough oxygen to the business to keep it alive. At the same time the business owner may well have kept themselves going with some personal savings, a mortgage holiday for 3 months and by deferring their July tax bill (to January 2021).
But…
SURELY BUSINESS AND PERSONAL FINANCES ARE TETHERED, AREN’T THEY?
Business owners need oxygen, not just the business. It is the business that supplies that oxygen to the owner, so there is a problem brewing..
There is much debate about the “cliff edge” for businesses when the support runs out. Some businesses will have prospered in Covid, but for many they will not expect to make a profit this financial year.
What will happen in January 2021? Many clients take a dividend in January to pay their personal tax bill. So, without profit or reserves there is no dividend cover. Furthermore, CBILs and BBLs should have been taken out to support working capital or investment and not to pay dividends.
BUT WE PRIDE OURSELVES ON OUR “SALARY AND DIVIDEND” PLANNING
The famous levers of the accountancy profession have historically been about tax optimisation or tax reduction.
From now on the accountancy profession should be anchored around meeting business owners’ cashflow needs going forward. You have to really understand what your personal clients’ cash needs are, so that you can help the business plan accordingly.
With outstanding tax bills due, Corporation tax likely to go up in the Autumn statement (impacting on outstanding directors’ loans) along with other personal taxes, this is the year to ask your client some questions about their personal financial circumstances. Otherwise….
…. doing your best to help save the business, but leaving the owner to go bankrupt will leave a bitter taste.