What Impact Do Business Taxes Have on UK Companies?

Business taxes are a fundamental part of running a company in the UK, but they can have a far-reaching impact on cash flow, operational efficiency, and the overall financial health of your business.

For lots of companies – particularly small and medium-sized enterprises (SMEs), tax obligations can create periods of real financial strain. Without the right planning and support, these payments can disrupt day-to-day business, limit your growth, and even push some firms towards financial distress.

What Impact Do Business Taxes Have on Cash Flow?

Cash flow is the lifeblood of any business. While revenue might look healthy on paper, it’s the movement of cash in and out of the business that truly defines its financial stability. Tax payments are one of the major outflows that can deplete reserves, leaving your business exposed.

Tax payments are non-negotiable, which is a crucial way that they differ from other expenses. Corporation tax, VAT, PAYE, and National Insurance Contributions (NICs) are all scheduled demands that need to be paid on time.

This can be a shock to your cash flow and is even more stark for small businesses managing tax, those with seasonal income or those undergoing periods of growth. If revenue is tied up in invoices or reinvested in stock, there might not be enough liquid cash to meet tax deadlines, which can lead to penalties or fines.

Why Businesses Don’t Set Aside Cash for Tax

Most businesses know they’ll have to pay taxes, so why don’t they put cash aside? Well, many do, but there are circumstances in which this isn’t always feasible.

Unpredictable Revenue Cycles

Seasonal businesses or those with inconsistent cash flow don’t always have the flexibility to put money aside. If most cash is spent on salaries, supplier payments, and growth, saving for tax can seem impossible.

Over-reliance on Forecasts

It’s easy to assume that future revenue will cover upcoming tax bills. But if sales targets aren’t met or payments from clients are delayed, the cash expected to pay tax isn’t there.

A diagram of cash flow projections for a small business

Lack of Financial Discipline

It’s tempting to use cash on hand for operational costs, particularly when growth opportunities arise. Businesses often see an opportunity to purchase stock, hire new staff, or upgrade equipment and prioritise that over setting aside tax payments.

Confusion Over Tax Liabilities

Many business owners aren’t aware of their exact tax liabilities until it’s too late. Without proper financial advice, they’re caught off guard when tax bills are due.

How Can We Break Down the Barriers of Cash Deficiency?

When cash reserves are tight, businesses face a difficult choice: delay payments or seek outside support. Delaying payments can result in fines, interest, and a strained relationship with HMRC. Instead, companies can work through cash deficiencies by accessing external finance, ensuring they have funds ready when tax deadlines arrive.

There are some key ways businesses can manage cash deficiency:

Short-Term Finance Solutions

Short-term business loans or tax finance facilities can bridge the cash flow gap, allowing businesses to cover tax payments while waiting for customer payments to arrive.

Flexible Repayment Plans

Rather than paying a large lump sum to HMRC, spreading payments over several months can reduce the strain on cash flow. Some businesses negotiate directly with HMRC, but this can be more difficult than using a third-party lender.

Using Invoice Finance

This allows businesses to access cash tied up in unpaid invoices, providing liquidity when it’s needed most.

Seek Financial Advice

Business financial advice can help you forecast your cash flow better, avoid unexpected bills, and access tailored solutions for short-term finance needs.

Keeping Cash in Your Business is Better for Your ROI

Holding onto cash is one of the most effective ways to maintain financial flexibility. By keeping cash in their business, companies have the freedom to pursue various avenues.

Invest in Growth

Having liquidity allows businesses to seize growth opportunities like new product lines, marketing campaigns, or hiring essential staff.

Handle Emergencies

A cash buffer provides peace of mind. If a client delays payment or unexpected costs arrive, the business isn’t immediately at risk.

Maintain Strong Supplier Relationships

Consistently paying suppliers on time builds trust, strengthens relationships, and might even unlock better credit terms.

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We’re Here to Support You with Your Tax Finance

Paying business tax doesn’t have to be a cash flow crisis. With Bluestar’s tax finance for businesses, you can get more than just funding – you get flexibility, support, and the breathing space to stay in control.

Why Bluestar is the right choice for you:

Quick Access to Funds

Our simple application process ensures you can access funds fast, so you’re not stuck waiting while deadlines loom.

Tailored Repayment Options

We know that every business is different. That’s why we offer repayment plans that fit your unique needs, keeping your cash flow intact.

Industry Expertise

Bluestar has years of experience supporting UK businesses. We understand the financial challenges you face and offer solutions designed for your industry.

Stress-Free Process

No complicated applications or industry jargon. Our approach is transparent, fast, and designed to help you make informed decisions.

To find out more about how we can support you, get in touch today.

FAQs

What is tax finance?

Tax finance allows businesses to spread their tax payments over several months rather than paying HMRC in one large sum. It’s a type of short-term finance designed to improve cash flow and reduce financial pressure on the business.

How does tax finance improve cash flow?

Instead of draining cash reserves in one large payment, businesses can spread their payments over time. This keeps cash within the business, allowing for greater financial flexibility and the ability to meet operational costs.

What happens if I can’t pay my tax on time?

If you miss a payment deadline, HMRC may charge interest, penalties, and fees. This can escalate if payments are delayed for long periods. Using tax finance helps avoid this by ensuring timely payments.

How do I know how much tax I owe?

It’s essential to keep your accounts up to date and work with a financial adviser or accountant. Many businesses discover their tax obligations too late, which is why forecasting is key.

How quickly can I access funds from Bluestar?

Bluestar offers a fast application process, and businesses can often receive a decision quickly. This enables companies to secure funds before tax deadlines arrive.

Is tax finance only for large businesses?

No, tax finance is available to businesses of all sizes, including SMEs – small business tax is one of our key areas of expertise.

An image encouraging readers to improve their cash flow with business tax loans

Further Reading

A woman access asset finance for her small business on a laptop