Home Finance Tax planning for the year ahead: What to consider for your small business

Tax planning for the year ahead: What to consider for your small business

by wrich

By Ben Brookes, Partner at Wellers, one of the UK’s leading accountancy firms, highlights what to consider and the strategies to adopt when effectively tax planning for the year ahead. 

The stress of the end of the tax year is behind us once again, but that doesn’t mean it should be put on the back burner. In fact, it’s the opportune moment to review your personal and business financial affairs. Being organised and considering this early in the financial year allows you to understand what opportunities are available to you to save tax, whether that be through allowances or reliefs. 

The UK tax system is extremely complex. The tax code itself consists of more words than the average human will ever read in their lifetime. So, if tax isn’t your natural area of specialism, it would be wise to seek professional advice. An advisor can help you explore what opportunities are available to you and arrange your affairs in a tax efficient way, whilst helping you avoid common mistakes that could land you in bother with HMRC. 

What should you consider? 

Year end tax planning for businesses is different to planning for individual affairs. The top five things to look at for businesses are: 

  1. Extended loss carry back
  2. Tax efficiency through the Annual Investment Allowance (AIA)
  3. The Super Deduction 
  4. Trivial benefits and the annual function exemption 
  5. Managing income

It’s also worth remembering that from April 2023, UK Corporation Tax will rise by six percent, from 19 to 25 percent. Whilst businesses with taxable profits below £50,000 will continue to pay the original 19 percent rate, any company with profits  above £250,000 will be liable to pay the higher rate. Where profits are between £50,000 and £250,000 than a marginal rate of 26.5 percent is applied albeit with the benefit of marginal relief.

Whilst this change won’t affect businesses in the current financial year, it would be wise to plan for this in the future, especially when it comes to investing in capital assets and the expenditure required to do so. 

It can seem like a lot, but when we break it down, it isn’t so overwhelming…

  • Extended loss carry back 

Introduced in the Budget 2021, this initiative means losses can be carried back for three years instead of just one. The losses are offset against profits from recent years, but it only applies to losses between 1 April 2020 and 31 March 2022. 

  • Annual Investment Allowance 

You can reduce your tax liability by making use of AIA, if you have money to invest in your business. It works by allowing up to £1m of investment in qualifying plant and machinery to be deducted from a company’s profits before Corporation Tax is paid. However, the allowance has only temporarily been increased to £1m and will return to the normal rate of £200,000 from 1 April 2023. 

  • The Super Deduction 

Introduced during the pandemic, the Super Deduction is a temporary policy to encourage corporate investment. It mainly applies to new machinery. Businesses that have invested since 1 April 2021 could benefit from a 130 percent write off against taxable profits on the investment up to 31 March 2023.  

One thing to note is that the Super Deduction is only available to businesses that pay Corporation Tax. 

  • Trivial benefits and the annual function exemption 

There are limits set on organisations giving cash, gifts, and/or other benefits to staff that falls outside of their wages/salary. If these limits are exceeded the business could be liable to pay tax on them. 

Summer and Christmas parties may also be liable under the annual function exemption. 

  • Managing income 

There are ways to manage a business’s income to be more tax efficient. For example, if a business has experienced a bumper year, but the following year isn’t projected to be as positive, it’s possible to delay the completion of sales so that they fall into the following tax year. This can be tax efficient as it helps to level out revenue and profits instead of having big peaks and troughs. 

Conclusions 

The end of the tax year can be stressful and whilst it’s tempting to park all thoughts of tax until next year rolls around, this isn’t a wise decision. If you leave everything to the last minute, it’s almost impossible to efficiently plan tax affairs because it takes time and due diligence to be able to do so. Without this time, mistakes creep in which could cause more issues later down the line, including a tax investigation by HMRC and hefty fines. The list of reliefs and allowances is exhaustive, but many can be tricky to know if a business qualifies, so it’s always worth seeking professional advice. 

To find out more about Wellers, please visit www.wellersaccountants.co.uk.   

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