Putting aside the tax money due each time you have an invoice paid is sensible planning, but is that money working as hard for you as it could be?
Many current accounts are paying no interest whatsoever, and when it comes to savings accounts, you would still be struggling to get anything meaty when it comes to interest payments. Businesses, in particular, will often leave this money sitting in an account that is paying nothing or next to nothing on the money building up.
However, when these amounts run into tens of thousands of pounds – if not hundreds of thousands of pounds depending on your personal or business status – not having this money work for you is a big opportunity to miss.
So, if you are currently using a separate current account paying no interest, or worse leaving the money in your existing business account without separating it out, then it would be sensible to look at what you can do to boost your returns.
Let’s say you have around £250,000 sitting in your tax account waiting to be paid to the taxman. If you were to put it into an easy access account for businesses, you could currently get 1% interest on this, according to financial statisticians Moneyfacts at the time of writing. Over the year, that would give you £2,500 extra to play with for no effort on your part.
However, if you are prepared to give some notice before you make a withdrawal – which would mean not being able to access it whenever you wanted – you would be able to get more in interest. For example, by agreeing to give 95 days’ notice, you could get 1.3% at the time of writing. So, you would increase the amount you could earn from that same £250,000 to £3,250.
Remember, this is money you do nothing to get other than spend a bit of time on paperwork to open the account. For the time that takes, it is a return worth having.
There are even companies that provide services for businesses to help them boost the returns on their business income by finding the best accounts for their funds. In short, a specialist will manage these accounts for you, to maximise the returns you can make.
One firm that offers this type of service highlighted that if a company failed to move £903,000 in cash accounts to the best-paying accounts over five years, this could result in a loss of income of as much as £41,538 over that period. This would be enough to hire an additional part-time member of staff for most businesses.
These companies should never hold your money in their own accounts, they should simply be working under your direction to move funds to the best-paying bank accounts and you pay a fee for this service. This ensures you are still covered by the Financial Services Compensation Scheme (FSCS).
As your accountant, we are likely to have services that will help you to increase the returns you can make on the money you hold in your business accounts. So, please contact us for details on how we can help you make your money work harder for your business.