Most UK companies currently pay tax at the rate of 19%.
It’s not been as low as this for many years. In fact, I cannot remember it being any lower.
With this in mind, it’s always worth remembering that, with the ideas shown below, for every £1000 incurred by your company before its year-end the saving will be £190 when the time comes to pay the Corporation Tax; usually 9 months after your year-end.
In every business “cash is king”. Therefore, you should only embark on any tax planning initiatives if your company’s cash flow is healthy and you can afford to do so.
Your business’s continued success is vital; so it makes no sense whatsoever to spend money, when you don’t need to, simply to save tax. Never fall in to the trap of “letting the tax-planning tail wag the commercial dog”. It’s pointless saving tax today, if you’ve not got a business tomorrow!
In no particular order of preference, here are several simple, yet highly effective, methods of reducing your company’s tax bill for you to consider.
- Buy some plant and machinery
Small companies can invest up to £200k in “plant and machinery” every year and normally this qualifies for 100% tax relief in the year of purchase (even if bought on finance) provided the asset is in use at the year end.
It doesn’t include cars (other than some very eco-friendly electric ones) but it does include vans and other commercial vehicles.
Computers, desks, office equipment, shop fixtures and fittings also qualify for the 100% relief.
- Early completion on the purchase of a commercial property
If you already happen to be in the process of purchasing a commercial property, it may be worthwhile taking steps to ensure that completion happens before your company’s year-end.
Certain types of “fixtures” within commercial buildings can qualify for tax relief, via capital allowances, even though the building itself doesn’t. There are certain things that need to be agreed with the vendor to ensure your tax relief is maximised.
So, make sure your lawyer is aware of the capital allowances position and ask them to speed things along if they can!
- Accelerate discretionary spends
The timing and amount of some business expenses can sometimes be influenced before your company’s year-end.
If you already have plans to incur any revenue expenditure, such as repairs and renewals, decorating, charitable donations, advertising, marketing, recruiting, and training, it would be worthwhile from a tax planning perspective to proceed with this before the year end.
- Defer sales
It is important that your company to continues to generate regular, healthy sales.
Nonetheless, if certain jobs or projects are expected to straddle the year-end before they are completed, these should not be invoiced in advance of their completion. Instead, you should include them in WIP and value them at cost.
In taking this course of action, the profit element of these sales could be deferred until the following year and your company’s tax bill reduced for this year as a result.
- Make company pension contributions
When approached sensibly, the company making contributions to either its pension scheme or to your own personal pension scheme can be beneficial in many ways.
As well as being a highly effective method of tax planning, this also is an excellent approach to protecting your family’s wealth and, of course, as a way of saving prudently for your retirement.
Please note, however, that the company pension contribution will only receive tax relief in the year it is actually paid. Therefore, it is important that the contributions are made well before the year-end so that the payments clear the bank with time to spare.
Also beware, and always seek professional advice before making such contributions, because there are strict limits to the amount that can be contributed by the company on behalf of each employee/director, dependent on a variety of factors relating to their own and the company’s tax position.
- How about staff bonuses?
If you want to reward staff members, you could consider putting a bonus scheme in place or simply declaring one off bonuses.
If the company accrues for any staff bonuses they will be allowed for tax purposes, provided they are actually paid within 9 months of the year-end.
The sooner you start planning, the more tax you can save.
So, why not start right now?