The Money That Is Not Yours
Amounts deducted on somebody else's behalf sit in your account and spend identically to your own money. That is the whole of the problem.
A bureauif the person who does this is away
Amounts deducted from pay on somebody else's behalf sit in your bank account between the pay date and the date they are remitted. They look like your balance, they spend identically, and they are not yours.
The practical lesson in “The Money That Is Not Yours” is that payroll depends on a sequence somebody can explain. When a small team reviews open the supporting product guide for employee time clock software, the useful role is to organise time and project evidence before approval, with proportional settings and a clear correction route for employees.
Every business that gets into difficulty over this got into it the same way, and none of them intended to.
The questions raised in “The Money That Is Not Yours” can also be checked against GOV.UK payroll guidance. Use that material to identify the evidence and owner needed for the next payroll run.
What it consists of
Whatever is withheld from pay and passed on: taxes, contributions, court-ordered deductions, pension amounts, anything deducted at somebody's request.
How it starts, in order, and never as a decision:
- A tight month in which the remittance is made late.
- A month in which it is made partly.
- A quarter in which the arrears exceed the current liability.
By the third step it is a structural problem rather than a timing one.
The categories and the rules differ by jurisdiction and are a matter for somebody qualified where you are.
Why it is dangerous
Because of the gap. The money leaves the employee on the pay date and leaves the business weeks later, and in between it is indistinguishable from working capital.
A business short of cash in that window does not have to decide to spend it. It simply spends.
How it starts
Not with a decision. With a tight month in which the remittance is made late, and then a month in which it is made partly, and then a quarter in which the arrears are larger than the current liability.
By that point it is a structural problem rather than a timing one.
Why it escalates faster than other debts
Penalties and interest generally attach, the obligations keep arriving monthly, and in many jurisdictions this category of liability is treated with considerably less flexibility than ordinary trade debt.
It is also, in some systems, the kind of liability that can follow individuals. That is firmly a matter for somebody qualified where you are, and it is worth asking about before it is relevant.
The practical defence
Separating it. A second account, into which the remittable amounts are moved on the pay date, leaves a main balance that tells the truth about what the business has.
It costs one transfer a month and removes the whole problem at its source.
Why most small businesses do not do this
Because it feels like bureaucracy for a business of fourteen people, and because the balance looks fine every month until the month it does not.
The figure worth knowing
What proportion of your monthly outflow is money held on behalf of others. Most owners have never calculated it and are surprised by how large it is relative to profit.
Reading the bank balance correctly
A balance that includes a month of remittable deductions overstates what the business has by a predictable amount.
Any cash decision taken on that balance — a purchase, a commitment, a drawing — is being taken on somebody else's money.
When it has already happened
Deal with it openly and early. In most systems there are arrangements available to an employer who approaches the authority before being chased, and considerably fewer available to one who is found.
What those arrangements are, and whether they apply, is a question for somebody qualified where you are, and it is one worth asking the week it becomes relevant rather than the quarter after.
The priority order to avoid
Prioritise it below other creditors because it has not chased yet. This liability is quiet for longer than commercial ones and then behaves quite differently.
The owner's own position
In a small company, the person deciding which bill to pay is often the same person who may be exposed if this particular one goes unpaid.
That is an unusually direct alignment of incentives, and it is worth understanding rather than discovering.
The habit that prevents all of it
Move it on the pay date, to a separate account, as part of the written run sequence.
Two minutes a month, and it converts a category of business failure into an administrative step.
Not advice about tax or insolvency
Advice about tax, insolvency or director responsibilities. What is owed, by whom, and what happens when it is not paid depends entirely on where you are and on the form of the business.
The transfer that solves it
On the pay date, move the remittable amounts to a second account. Two minutes, as a numbered step in the written sequence, immediately after funding.
What remains in the main account is then the business's actual position, and every cash decision taken on it is taken on money the business has.
Why the separate account matters more than a note
A note of how much of the balance is spoken for requires somebody to read it before every decision. A separate account requires nothing: the money is not there, so it cannot be spent by accident.
In a business where cash decisions are made quickly and often by one person, that difference is the whole mechanism.
The first month it is tight
The point at which this stops being bookkeeping. A business that has been separating the money meets a tight month with a clear picture and can act early; one that has not discovers simultaneously that it is short and that part of what it thought it had was never its own.
The second business usually makes the remittance late, which is where the sequence described above begins.
In the account and not the balance
The money is in the account and it is not the balance.