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Your Year End Tax Planning Checklist: Businesses

Your Year End Tax Planning Checklist: Businesses

Your Year End Tax Planning Checklist: Businesses

Wednesday 14 February, 2024

Do you worry about your tax bill towards the end of the Tax Year?

Whether you're a business owner, an individual, or both, it would be very wise to set some time aside to review your personal and business tax planning. A review can help you understand what opportunities, if any, may be available to you, your business and your family.  

In this article we look at Business tax planning opportunities, following on from last week's article looking at tax planning for individuals.

Speak to a local tax planning expert in St Albans for tax advice

Please remember that the UK tax code system is enormous and also very complicated. So, engaging accountants and tax advisers is recommended. This being the case, why not pay a visit to your local Accountants in St Albans, Visionary Accountants, to help you make sense of it all.

Year end tax planning checklist for businesses

1. Corporation Tax

The main rate of Corporation Tax on business profits is now 25% with a starting rate of 19%. If your profits are greater than £250,000 then you will be subject to 25% rate. Businesses with taxable profits less than £50,000 will be taxed at the current 19%.

If your profits are between £50,000 and £250,000 then a tapered rate will be applied to avoid 'cliff-edge' tax hikes. The tax rate increases from 19% to 25%, depending on the amount of profit, through the application of Marginal Relief. The main rate is charged at 25% and then reduced by a marginal relief calculation on a sliding scale depending on your level of profits between £50,000 and £250,000. You can find out more about this, and how much marginal relief you're entitled to by using HMRC's marginal relief for Corporation Tax calculator

Top tax advice tip: be aware that if you have associated companies then the thresholds will be reduced. 

A company is an ‘associated company’ of another company if one of the two has control of the other, or both are under the control of the same person or persons (CTA10/S25 (4). ‘Control’ for this purpose is defined as for close companies (CTA10/PART10, S450 and S451, see CTM60210).

A company may be an ‘associated company’ no matter where it is resident for tax purposes.

These thresholds are then shared between the total of; the company in question plus the number of associated companies. In other words, if ABC Ltd has 4 associated companies then the CT thresholds will be divided by 5; so instead of £50,000 profits for the 19% starting rate it is reduced to £10,000 and the upper rate is reduced to £50,000.

If your company is accounting for deferred tax, you may need to factor in the increased rate in your deferred tax calculations for your year-end accounts.

Corporation tax can get very complicated, therefore it is recommended to speak to a specialist tax advice accountant. 

2. Research & Development tax credits

Research & Development tax relief encourages companies to invest in innovation by rewarding those that undertake qualifying R&D projects with either:

  • A reduction in their Corporation Tax liability if they're profitable or;
  • A cash payment in the case of loss making firms

If you undertake this form of expenditure then, depending on your circumstances, it could be pertinent to maximise any R&D investment you commit to in the 2023/24 tax year. The reason being both R&D tax relief schemes, SME and RDEC, are being merged into one single scheme for all claimant companies in the name of simplification of the rules.

This will impact on accounting periods beginning on, or after, 1 April 2024 and the changes mean the notional RDEC credit will be reduced from 25% to 19% to equate to 16.2 pence for every £1 of qualifying spend. R&D intensive loss-making SMEs will also see the R&D spend threshold reduced from 40% of total spend to 30%.

Research & Development is a highly specialised area which should only be undertaken by experts. In expectation of the increased level of complexity and to ensure our clients receive the most professional service in this area, Visionary Accountants recently established a partnership with a nationally recognised, specialist R&D team. We work hand in glove to deliver a high quality service for our clients so please get in touch to discover more.

3. Tax efficiency through the Annual Investment Allowance

If you have the means of financing purchases, and acquiring capital assets, then this could reduce your tax liability by making use of the Annual Investment Allowance (AIA). The AIA ensures up to £1m of investment can be deducted in the year of expenditure from your profits before Corporation Tax is applied, when invested in qualifying assets.

The AIA applies to most companies and partnerships that invest in plant and machinery. Specifically this can include:

  • Robotics and computer aided machines
  • Printing presses, lathes, and tooling equipment
  • Agricultural machines such as combine harvesters and tractors
  • Office equipment, office furniture, and computers
  • Heavy duty vehicles such as lorries, trucks, cranes, diggers, and vans
  • Integral features to buildings and structures such as electrical systems, cold water systems, water heating, ventilation, air conditioning, lifts, escalators, and external solar shading
  • Building fixtures, such as shop fittings, kitchen and bathroom fittings   
  • Games machines and amusement park rides
  • Fibre optic cabling and wind machines

Full expensing is available to companies subject to Corporation Tax. If your capital expenditure in your company is greater than £1m, then an allowance can be applied whereby you can deduct from your taxable profits 100% of the qualifying expenditure in the year that expenditure took place. 

Businesses should consider the timing of investments; depending on their corporate year-end date and level of profits, to maximise any potential tax-offset.

Speak to our accountants in St Albans to ensure that you make the most of your Annual Investment Allowance.

4. Commercial property

Are you intending to purchase commercial property, or furnished holiday lettings? If these contain fixtures, then capital allowances could be claimed. Remember that when a property is purchased, the value attributable to the fixtures has to be agreed through a joint election by the purchaser and the vendor. It is worth seeking professional advice to ensure any capital allowances are maximised.

Capital Allowance identification and measurement is a highly specialised area which should only be undertaken by experts. In expectation of the increased level of complexity and to ensure our clients receive the most professional service in this area, St Albans based Visionary Accountants recently established a partnership with a nationally recognised, specialist Capital Allowances Claims team. We work hand in glove to deliver a high quality service for our clients so please get in touch to discover more.

5. Employing trainees and apprentices

If you take on apprentices then this has various tax benefits. There aren't any Employer's NICs applicable to the pay of an apprentice are under the age of 25. This is so long as you pay them at, or below, the Lower Earnings Limit (£123 per week in 2023/24).

If you employ staff under the age of 21 then there's effectively no Employer's NIC to pay and this is regardless of whether it's through an apprenticeship contract, or not.

If your annual payroll bill is less than £3m then the Apprenticeship Levy doesn't apply. This means you can apply for co-investment Government funding towards the cost of training your apprentices. The way this works is that your business pays 5% and the government pays the remaining 95% of the cost. 

To reserve the funding you'll need to set up an Apprenticeship Service account. Of note, if you have more than 50 employees on the payroll then you will be eligible for 95% funding for apprentices aged 16+. If you have fewer than 50 employees on the payroll then you will be eligible for 100% funding for apprentices aged 16-18, and for apprentices aged 19+ you will receive 95% of the funding.  

6. Trivial benefits and events for your staff

Think about if you have provided your employees with cash, gifts, and/or benefits that aren't included in their wages. If you exceed certain limits there could be a tax liability. For tax efficient gifts to staff you need to refer to Benefit-In-Kind (BIK) rules.

If you have held staff entertainment events such as Summer or Christmas parties, or both, then you should refer to the rules around the annual function exemption. Up to £150 of expenditure per employee (including VAT), can be allocated to an annual event and these costs can be treated as a tax deductible expense.

There are also specific rules and guidance you need to adhere to. If you exceed these limits then you'll face income tax liabilities for your staff and your firm will face National Insurance implications. To avoid an added tax bill for your employees, you can as an alternative enter into a PAYE Settlement Agreement with HMRC whereby you settle the tax and NI due.

You must report all this to HMRC by 6 July and pay any tax and NIC due by 22 July.

For more in-depth information please read our news article: What benefits can you provide to your employees tax-free?

7. Managing income and retaining profits

As a business owner you could look at managing your drawings from the company (in the form of dividends or bonuses) so that some of it falls into the following tax year. This is particularly useful if you're in a bumper year say, but projections for the following one aren't as good. 

If you don't need to withdraw them from your company, then retaining profits could be more tax efficient. The reason being corporate tax rates are lower than those for income tax. Also by retaining money in the business, this can then be used to potentially fund future investment which is likely to be less expensive than financing it through borrowing.

A word of warning, if the funds retained in the business amount to more than 20% of its value then this will impact on the availability of BADR in the event of a sale.

You could also consider making a company pension contribution in a bumper profits year to reduce your corporate tax bill without increasing your personal one.

Our accountants provide critical tax advice to businesses in and around St Albans. If you need help managing income and retaining profits, please get in touch. 

8. Switch to green company vehicles

If your company cars have high CO2 emissions then this leads to a greater percentage of each car list price being used to calculate the employers class 1A NIC benefit in kind. Consequently it may be wise to review your stock and only offer employees low emission models. 

Also, enhanced capital allowances of 100% are available if you purchase new electric cars with no CO2 emissions. If the cars you purchase don't emit any more CO2 than 50g/km, then they are classified as plant and machinery, meaning you benefit from a writing down allowance of 18%.

Cars that emit more than 50g/km have a writing down allowance of 16%. If you reimburse your employees for the cost of charging the company electric car from their home then that isn't subject to taxation.

Electric vehicles are a great 'vehicle' for reducing your tax bill, and our clients regularly ask questions relating to the structure of the purchase of new cars. If you need tax advice for the purchase of company vehicles in 2024, get in touch with our specialist accountants.

9. The tax implications of becoming an investment company

If, as your business scales, you achieve cash surpluses, you may look to invest through your company in things such as land, property, and other assets. These investments could generate a decent return over time. If you're doing this however, you need to review the value of these assets and their contribution to your company's overall value. 

If they make up 20% or more of your company's overall value then HMRC deem this as having a 'significant' impact. This means HMRC could consider you an 'investment company' rather than a 'trading company'. In this case you would then no longer qualify for:

  • Business asset disposal relief
  • Enterprise Investment Scheme shares
  • The Enterprise Management Incentive share scheme for employees

The solution to this is properly planned drawings from the business to reduce any cash balances or to spend the money in areas that qualify as trading rather investment activities.

10. P60 forms

Finally, remember that the P60 forms, that summarise your employees’ salaries and deductions for the prior tax year, must be issued to staff by 31 May. They have to be distributed to everyone that worked for you on 5 April.

If you are worried about your tax bill and need tax advice, please get in touch with our specialist accountants, Chris Wallace and James Murray. You can call our team in St Albans on 01727 730550.

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