Does it sometimes feel like your business may be paying too much tax? If so, you may be missing out on important allowances and reliefs that are available to you.
To prevent overpayment of tax in the first instance, we recommend that businesses organise regular tax planning sessions with us to ensure that tax liabilities are minimised.
In this blog, we’re going to consider some useful tax planning tips, that we often discuss with our clients, that every limited company business owner should consider to minimise their tax liabilities.
Corporation Tax – the tax paid on the profits a company makes – will be among your business’ largest expenses.
There are several ways small business owners can cut the cost of Corporation Tax, the first being the use of readily available tax reliefs created in recent years by the Government.
One relief that is often underutilised is R&D tax credits. If you run a small business this will allow an extra 130 per cent of identified costs, as well as the normal 100 per cent deduction, to be written off against taxable profits.
This equates to around 33p in every pound spent on a project that has led to the creation of new products, processes or services or where you have modified an existing product, process or service. Claims can even be made against unsuccessful innovations that resulted in a loss.
Useful relief can also come from Capital Allowances. You can claim Capital Allowances when your business purchases assets that you keep to use in your business, for example, vehicles, equipment or machinery.
You can deduct some or all of the value of the item from your profits before you pay tax, which can help to reduce your Corporation Tax liabilities.
Between January 2019 and December 2020, the Annual Investment Allowance (AIA) has been temporarily increased to £1 million.
We have, therefore, encouraged businesses to capitalise on this special allowance by bringing forward planned purchases of plant and machinery.
Capital purchases include tools, construction equipment, factory fixtures, office equipment and lorries and vans (cars do not qualify), and much more.
Deferring (and accelerating) income is often an important component of tax planning provided the accounting rules will accommodate this legitimately. Businesses can effectively increase and decrease the amount of Corporation Tax they are liable for by delaying, postponing or accelerating the receipt of revenue or expenses until a future tax year.
Finally, you can also change your company’s year-end to make your company’s financial year run for more or less than 12 months, for which there are particular company accounting rules to follow.
The tax advantages of this are minimal, but it can be important to consider this if your company has experienced a loss, as it might be possible to carry this loss into a different year so that it can be offset against a profit.
These are just some of the more straightforward steps you can take and there are many other points to consider if you are concerned about your Corporation Tax bill. You should always take professional advice before taking or refraining from action in relation to your company’s taxation affairs.
Why not speak to our team to arrange an initial tax consultation to find out how you could reduce your liabilities.