The importance of advance payments for both partnerships and sole traders.

Tax prepayments are important for both sole traders and corporations to maintain financial stability and avoid unnecessary tax increases. In 2024, this practice remains relevant for all taxpayers. Let's take a closer look at why prepayments are so essential and how taxpayers can take advantage of them.

Tax increase for insufficient prepayments

For companies

• Companies that fail to pay enough in advance will face a tax increase. The multiplier rate for insufficient prepayments will rise in corporate tax from 6.75% (income year 2023) to 9% (income year 2024, assessment year 2025). 
•  There will be no increase for the first three financial years of a small company (Art. 1:24, §1 to 6 CCA).  However, prepayment in this particular case does allow you to account for future liabilities, which can be beneficial for your available cash. (see tip)

For sole traders

• Sole traders will also face tax increases if they fail to make sufficient prepayments on time.  The multiplier rate will increase in personal income tax from 4.5% (income year 2023) to 9% (income year 2024, assessment year 2025).  Which is a significant increase for these taxpayers.

The importance of timely and sufficient prepayments
Avoid tax increases

• By making timely prepayments, taxpayers can avoid or reduce a tax increase. The increase is not tax-deductible and can be a significant financial burden.

Cash flow benefit

By making timely and regular prepayments, taxpayers spread the impact of income tax on their cash flow.

Practical tips for prepayments in income year 2024 (assessment year 2025)

• Start prepayments in time to avoid increases;
•  Keep in mind the payment deadlines and make sure you make sufficient prepayments;
• Discuss prepayments with your accountant to determine an optimal payment strategy.

Excessive prepayments

Did you fail to achieve the expected results and prepaid too much as a result? Will prepayments made then be lost or do you have to wait for the tax bill to recover these funds?  No, you can make a change of destination of your prepayments until 31 March of the following year (when the financial year equals the calendar year). You can carry forward (possibly partially) the prepayment to next financial year and/or claim an early refund. A combination of both, transfer and repay, is also possible.

TIP: Maintain your financial reserves and/or cash flow for your investments or future projects

Finance your prepayments with a loan from your financial institution.  This way, you will not only avoid unnecessary tax increases, but also optimise your reserves and available cash flow.  You can use these funds for investments, projects, and contingencies. These loans are available at a cheaper rate, where you spread repayment over 12 months.  The interest paid is also a tax-deductible expense.To benefit from the 12% tax benefit, it is advisable to submit your application to the bank before the end of March.

Get assistance from your accountant or tax advisor for personalised and top-quality guidance.  Crowe Spark Accountants & Tax Advisors can provide you with expert advice and all the necessary information to manage your finances in the best possible way.