Given the ever-changing tax legislation and commercial factors affecting your company, it’s crucial to review your tax position annually. Pre-year-end tax planning is vital as you can typically predict your results with reasonable accuracy and take action where needed. Here are some key areas where advance planning can lead to tax savings.
Corporation Tax
Advancing expenditure: Bringing forward certain expenditures (e.g. repairs, advertising, redundancy costs) can reduce your current year’s tax liability.
Capital allowances: Consider the timing of capital expenditure for optimal relief. Companies can claim 100% relief on plant and machinery up to £1 million through the Annual Investment Allowance (AIA).
Full expensing: From April 2023, companies can claim 100% capital allowances on qualifying new plant and machinery, helping to offset tax liabilities.
Trading Losses
Loss carryback/carryforward: If your company incurs trading losses, they can be set against current or past profits or carried forward to offset future profits.
Group relief: Losses can be surrendered to reduce taxable profits in other companies within the group.
Extracting Profits
Dividends vs. Salary: Directors/shareholders should consider extracting profits via dividends rather than salary to save on National Insurance contributions (NICs). Timing dividend payments may offer additional tax benefits.
Loans to Directors/Shareholders
Loans to participators (e.g. directors or major shareholders) can trigger tax liabilities if not repaid within nine months of the accounting period’s end. Careful timing is crucial to avoid additional tax costs.
Capital Gains and Asset Purchases
Disposals: Timing of asset disposals can help manage tax liabilities. Consider delaying or advancing disposals to take advantage of available losses and reliefs.
Business asset rollover relief: Reinvesting the proceeds from the sale of an asset in a qualifying new asset may defer capital gains tax until the new asset is sold.
Tax Rates and Self-Assessment
The main corporation tax rate rose to 25% for profits over £250,000 as of April 2023. Smaller companies face reduced rates, but it’s essential to stay on top of your obligations.
Companies must submit corporation tax returns within 12 months and pay any liabilities within nine months of the year-end.
How We Can Help
Effective tax planning requires early action. The sooner you start thinking about your company’s tax position, the more flexibility you’ll have to implement strategies that minimise your liability.
We offer tailored advice to help your company save on taxes while complying with the latest regulations. For more information, please see our guide.
Ensure you’re fully prepared for the year ahead by contacting us today.