Pre-year-end planning for limited companies
As your company year-end approaches there are some considerations you should make and, with new rates of Corporation Tax now in play, it is important to think about what you are aiming to achieve.
Lower profits may mean a lower Corporation Tax bill but that isn’t necessarily the best result for the business. There are some reasons you may want to show a higher profit and pay more tax:
- Your mortgage - The performance of your company and dividends drawn from it will affect your mortgage options.
- Funding - Lenders will consider the profits of the business when looking at repayment/affordability.
- Sale - If you are considering selling your business, you will want to ensure the profit and loss and balance sheet look as strong as possible for valuation purposes. Planning needs to be carried out well in advance of any sale and further considerations made regarding Business Asset Disposal Relief.
If you are looking to mitigate your Corporation Tax liability, you could consider:
- Assets must be delivered and in use to claim tax allowances. On most plant and machinery, fixtures and fittings, 100% relief is given up to an annual limit of £1 million.
- The ‘Super Deduction’ tax relief ended on 31 March 2023.
- Full Expensing was announced in the Spring Budget 2023 giving 100% first-year relief to companies on qualifying new main rate plant and machinery investments from 1 April 2023. This relief has now been made permanent.
- Remember that disposals made before or after the end of your accounting period may affect the taxable profit.
- Employer pension contributions can form part of a remuneration package. A lump sum contribution could be made for one of the directors. This is treated as a business expense and therefore gets tax relief by reducing profits.
- You may also consider delaying pension contributions, however, you should speak to your financial adviser on this to ensure pension contribution allowances are not being lost.
Other company tax reliefs
- During the process of considering year-end planning, this is also a good opportunity to look at whether there is expenditure that may qualify for Research & Development relief.
- Directors’ remuneration – are you processing an annual salary to utilise tax-free personal allowances and gain a qualifying year for state pension purposes.
Be mindful of expenditure that will not affect your profits, such as:
- Spending on matters that don’t happen until after the year-end such as paying a deposit for an event in the following year, buying an annual subscription/insurance as the amount is pro-rated to the period it relates.
- Dividends – these are paid out of post-tax profits and will not reduce Corporation Tax.