Many business owners in the UK are familiar with the concept of tax debt as a kind of debt that is associated with the inability to pay tax. Because tax debts may grow if left unpaid, it is often seen as a priority by most entrepreneurs. Unfortunately, there are still some who lag behind in their tax payments. As a result, they get wallowed in tax debt and becomes a prospect for additional tax penalties.
As it is, mismanaged tax debts are one of the reasons some businesses in the UK experience a lot of pitfalls in their SME. In fact, the reality that these same business owners get in trouble with the HMRC is at the top of the list. But do you know that aside from being reprimanded by the HMRC, there are more negative effects that could result from failing to pay tax bills on time? Here are some of them:
1. Money management issues.
Planning and managing your corporate finances is more difficult if you have a tax debt to be mindful of. Tax debts accumulate interest over time so this will seriously strain your budget. Moreover, you cannot stick to your original financial plans for your company if you need to pay your tax debts along the way.
2. Economic recession.
When a lot of corporate taxpayers have tax debts, the tendency is that they will resort to frugal means to save money. As such, this may have an effect on the company’s spending habits. And as you may have already surmised, a collective effort in cutting costs may lead to an economic drawback--probably even debt, And later on, to a serious fiscal crisis.
3. National budget deficit.
It is common knowledge that the national budget is comprised of the taxes paid by personal and corporate taxpayers. If these taxpayers are not paying their debts on time, the national budget will suffer. As a result, there may become a deficit in the national budget, which would then impact the government’s efforts to uphold the welfare of its citizens.
4. Increased government borrowing.
In relation to a national budget deficit, the government could opt to borrow more money for the upkeep of the nation. The amount of money borrowed, including the interest, could potentially be passed on to taxpayers. Or as the case may be, corporate taxpayers may also be imposed with higher taxes to assist the government’s debt servicing initiatives in the long run.
Tax debt may be common but that does not mean you should allow your business to get wallowed in it. Through tax planning, you can figure out how to pay your taxes on time and consequently, to keep out of trouble with the HMRC.
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