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We here at Lillis Egan O’Beirn & Co believe that tax planning should be part of an SME’s wider financial planning rather than something left until a payment deadline arrives. For Irish businesses, reviewing upcoming tax liabilities before year end can provide greater clarity over cash flow, reduce the risk of unexpected pressure and help business owners make more informed decisions about spending, investment and growth.

Tax payments can create unexpected cash flow pressure

A business can be profitable throughout the year and still experience financial pressure when a significant tax payment becomes due.

This is because tax liabilities do not always arise at the same time as the cash required to meet them. A business may have generated strong sales, invested in stock, paid employees and funded expansion while accumulating a tax liability in the background.

When the payment deadline arrives, the business needs to have sufficient cash available.

This is why reviewing the tax payment schedule before year end is important. It gives the business an opportunity to understand what may be due and when, rather than discovering the requirement when cash is already committed elsewhere.

1. Identify upcoming tax liabilities

The first step is to establish a clear picture of the taxes the business may need to pay.

Depending on the structure and activities of the business, this could include corporation tax, VAT, PAYE and employer-related liabilities, as well as other taxes that may apply.

Business owners should review:

• Upcoming payment deadlines

• Estimated liabilities

• Previous payments

• Current year trading performance

• Outstanding Revenue liabilities

• Any expected changes in the level of tax payable

The objective is to create a realistic forward-looking picture.

A tax liability that appears manageable when considered on its own can become more difficult when several obligations fall within the same period.

2. Compare expected tax with available cash

Once potential liabilities have been identified, compare them with projected cash balances.

This is where tax planning connects directly with cash flow forecasting.

If the business expects a significant tax payment in the coming months, consider what else is likely to happen during the same period.

Are wages expected to increase? Is stock being purchased? Are major suppliers due to be paid? Is equipment being purchased? Are there planned dividends or capital investments?

A business should understand how these commitments interact.

Cash flow forecasting can help identify a potential shortfall early enough for the business to consider its options.

3. Check whether current forecasts are realistic

Tax planning depends on accurate financial information.

If profit forecasts are outdated, the expected tax liability may also be inaccurate.

This is particularly relevant for businesses that have experienced significant changes during the year. Revenue may have increased, margins may have changed or additional costs may have emerged.

Review the latest management accounts and compare actual performance with the original budget.

Questions worth considering include:

• Is turnover ahead of expectations?

• Have margins increased or fallen?

• Have overheads changed significantly?

• Has the business made substantial capital expenditure?

• Have there been changes to staffing levels?

• Are there unusual or one-off costs?

The more accurate the underlying financial information, the more useful the tax forecast will be.

4. Consider investments and capital expenditure

Year end tax planning can also be an appropriate time to review planned business investment.

If the business is considering purchasing equipment, vehicles, technology or other qualifying assets, it may be important to understand the potential tax treatment before making the investment.

Capital expenditure should never be undertaken solely to reduce a tax bill. Spending €10,000 to save a proportion of that amount in tax does not make financial sense unless the investment itself provides a genuine business benefit.

The better approach is to consider whether the investment is commercially justified and then understand the tax implications.

Timing can also matter, so businesses should obtain appropriate professional advice before making significant expenditure decisions.

5. Review previous tax payments and estimates

Another useful exercise is to compare previous tax payments with actual business performance.

If the business has consistently underestimated its liabilities, this may indicate that its forecasting process needs improvement.

Equally, if the business has regularly overestimated liabilities and maintained unnecessarily large cash reserves for tax payments, there may be an opportunity to improve cash management.

Historical information can provide useful insight into the relationship between profits, tax liabilities and cash requirements.

This can make future planning more accurate.

Do not overlook VAT and payroll liabilities

Corporation tax often receives the most attention when businesses discuss year-end tax planning, but other tax obligations can have an equally significant impact on cash flow.

VAT collected from customers is not business income in the traditional sense. A portion may ultimately need to be paid to Revenue.

Similarly, PAYE and employer-related liabilities arise as part of employing staff and need to be factored into cash flow planning.

Businesses should therefore avoid looking at tax payments in isolation.

The goal should be to understand the complete schedule of financial obligations over the coming months.

Build tax payments into your cash flow forecast

A useful approach is to include expected tax payments directly in the business’s rolling cash flow forecast.

This can help answer important questions before they become urgent.

Will there be enough cash available when the payment is due?

Will a planned investment create pressure at the same time?

Should spending plans be adjusted?

Does the business need to preserve more working capital?

Would revised forecasting provide a clearer picture of future obligations?

Having this information in advance gives business owners more time to make sensible decisions.

Make tax planning part of year-end planning

Tax should not be treated as an unexpected cost that appears after the financial year has finished.

For Irish SMEs, reviewing the expected tax position before year end can form an important part of wider financial planning. It can help business owners understand upcoming liabilities, protect working capital and avoid unnecessary surprises.

The strongest approach is to combine tax forecasting with management accounts, cash flow forecasting and business planning.

The aim is not simply to know how much tax may be payable. It is to understand when the cash will be required and how those payments fit into the wider financial position of the business.

If you would like to discuss your business, contact us by email jwalsh@leob.ie or visit leob.ie.

Disclaimer

This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.