Your company has to pay Corporation Tax on net earnings at the end of every trading year. There is the potential for a further charge to tax when the company pays its shareholders their dividends (only if they are higher rate tax payers, with earnings exceeding £38,335 in the 2006/2007 year).

As the Corporation Tax charge is paid annually after the end of the trading year, a substantial portion of the company's earnings from the year needs to be ring-fenced for paying the tax bill when it comes. Unfortunately, it is very easy to forget to lay aside enough cash to meet this liability. A traditional paper-based system calculates your tax after the end of the financial year, by which time the opportunity for forward planning has gone, and cash which would otherwise be used to pay outstanding tax may already be committed to other things.