Delaying your tax payments? Know the important things
Delaying your tax payments can be a smart and completely legal way to maximise your cash flow. It's not about dodging tax it's about timing when you pay it.
With careful planning, you can structure your finances to pay tax later rather than sooner. This keeps more money in your business for longer periods.
Understanding which deferral strategies HMRC accepts is crucial. This knowledge helps you avoid penalties and maintain good standing with the authorities.
Pie tax, the UK's first personal tax app, helps track your tax position in real-time to spot deferral opportunities. Or if you're just here to get to grips with it all, let's break it down!
What Does "Pushing Tax to the Bottom" Actually Mean?
"Pushing tax to the bottom" simply means legally deferring your tax payments to a later date. It's about timing, not avoiding your obligations.
You're not trying to pay less tax overall you're strategically deciding when that tax gets paid. This improves your short-term cash flow, giving you more working capital now.
It's worlds apart from tax evasion (which is illegal) or aggressive tax avoidance (which HMRC frowns upon). All tax eventually gets paid just later.
For business owners, this approach can be transformative. It's often the difference between having funds available for growth versus watching cash disappear prematurely.
Smart Pension Contributions
Making pension contributions is one of the most HMRC-approved ways to defer tax. Your contributions reduce your current taxable income, while tax is only paid upon withdrawal in retirement.
Higher-rate taxpayers benefit most, getting 40% or 45% relief now. They'll likely pay only basic rate tax in retirement, creating a significant advantage.
Remember to watch your annual allowance currently £60,000 for most people. Exceeding it can trigger tax charges that defeat the purpose of deferral.
Employer pension contributions from your company can be even more efficient. These save both income tax and National Insurance, enhancing your cash flow position.
I once advised a client who redirected £40,000 of potential salary into his pension. This simple move saved him nearly £18,000 in immediate tax, dramatically improving his business liquidity.
Company Structure Tactics
If you operate through a limited company, you have more options for tax timing. Profits retained in the company are only subject to corporation tax, deferring personal tax until extraction.
Choosing between salary and dividends affects when tax becomes due. Salary faces monthly PAYE deductions, while dividend tax typically comes through self-assessment many months later.
Corporation tax is paid 9 months after your company's year-end. This creates natural timing differences compared to income tax payment schedules.
Using a company to hold investments can also create tax timing advantages. These benefits simply aren't available to sole traders or partnerships.
Capital Investment Approaches
Making capital investments can push tax payments into future years. The Annual Investment Allowance gives 100% tax relief on qualifying expenditure up to £1 million.
Timing these investments strategically around your accounting year-end can maximise the cash flow benefit. This approach works particularly well for equipment-heavy businesses.
If you're planning to sell business assets, consider the timing carefully. Shifting capital gains between tax years can allow more effective use of annual exemptions.
Research and Development tax credits can also create significant timing advantages. These are especially valuable for innovative businesses developing new products or services.
Income Recognition Strategies
Choosing your accounting date can significantly affect when tax becomes due. A year-end of 31 March means tax is due much sooner than a year-end of 5 April.
For service businesses, when you invoice clients can shift income between tax years. This remains perfectly legal as long as it reflects genuine business decisions.
Switching between cash basis and accruals accounting (where permitted) can create one-off timing benefits. This approach requires careful planning to maximise advantages.
Just be careful not to create artificial arrangements solely for tax purposes. HMRC has various anti-avoidance rules designed to catch such schemes.
HMRC Red Flags to Avoid
Creating artificial splits in your income streams purely to manipulate tax timing will likely be challenged. HMRC looks closely at arrangements without commercial substance.
Backdating documents to push income into different periods is a serious no-no. This practice can trigger substantial penalties and damage your reputation with authorities.
Always maintain proper records that support your tax position. Good record-keeping is your best defence if HMRC raises questions about your timing strategies.
Remember there's a fine line between legitimate planning and arrangements HMRC might view as avoidance. When in doubt, seek professional advice before proceeding.
Final Thoughts
Tax deferral strategies offer valuable cash flow benefits when done right. The key is ensuring your approach is based on genuine business decisions, not just tax considerations.
Regular reviews with a qualified tax professional will help keep your strategy current. Tax rules change frequently, and yesterday's perfect plan might not work tomorrow.
The goal should always be legitimate timing management. You're aiming to pay the right tax at the right time, not avoiding your fair share of contributions.
Pie tax: Simplifying Tax Deferral
Managing your tax timing shouldn't require an accounting degree or endless complicated spreadsheets. Our intuitive interface makes complex strategies accessible to everyone.
The UK's first personal tax app, Pie tax shows you the cash flow impact of different deferral strategies in real-time. You can see exactly when tax will become due under various scenarios.
Our sector-specific guidance highlights deferral opportunities relevant to your particular business. We tailor recommendations based on your industry, structure and financial position.
When you're ready to implement your chosen strategy, our direct HMRC filing ensures everything is submitted correctly. This eliminates the stress of compliance while maximising your timing benefits. Fancy seeing how it works? Take a peek at the Pie tax app today.
