Here’s a way your company can save tax at 19% instead of 17%
The current rate of corporation tax is 19% and will be dropping to 17% in 2020.
This means that if you can find a way of legitimately reducing your company’s profits in the current year instead of in later years there will be a real tax saving for you.
Here’s one such way.
You should carefully and prudently review your company’s closing stock valuation.
Financial Reporting Standard 102 (FRS 102) requires that stock is evaluated at the year- end to assess any loss in value due to obsolescence, damage or market changes. As a basis for recognising such a loss the valuation here should be based on “selling price less costs to complete and sell”.
HMRC are happy with this treatment.
Customers are often fickle and trends change. You may find it difficult to sell some items of stock that you bought only two or three months ago. If this proves to be the case, make provision for this obsolescence now, rather than later.
You must be careful, however, where events occurring after the year-end cause damage because HMRC believes that values should only be reduced for tax purposes (i.e. the write down allowed and taxable profits reduced) if the issue existed at the accounting date.
For example if a fire took place after the year end and caused significant damage to the stock (and, obviously, a significant reduction in its value) this would not give rise to a tax adjustment until the following year. However if the damage was caused by something which existed at the year-end then it would be acceptable to take the deduction in the earlier year.
Stock valuations are quite a subjective area and sometimes they are allowed to stand in a company’s accounts at what could be argued to be excessive values. By conscientiously reviewing your stock valuations in order to establish their fair value, could lead to attractive tax deductions and cash flow advantages for your company and is also the correct approach from an accounting perspective.