Pre-year-end tax planning is an important part of any successful business strategy. It ensures that tax planning opportunities are not missed. Forward planning is crucial, and a proactive approach will ensure you maximise the opportunities available.
The pre-year-end tax planning can cover a range of subjects such as:
- Business performance
- Capital asset reliefs
- R&D tax relief
- Remuneration planning
Reviewing the year-to-date business performance is the starting point in pre-year-end tax planning. Business owners can then plan and act accordingly to maximise both business and personal goals.
The process involves:
- Reviewing the financial statements of the business
- Identifying pain points
- Implementing a plan to maximise tax efficiency
- Clear indication of potential year-end tax liabilities due
- Time to mitigate any potential liabilities with prudent tax planning
- Provide a snapshot of the current credit rating
- Highlight the main drivers that will influence a more positive result
A positive credit rating for a business is vital to all stakeholders in the business including creditors, suppliers and customers.
Capital asset reliefs
Planning before the year-end allows you to utilise certain tax reliefs. These are based on the profits before the tax liability has been calculated. One way of maximising reliefs is by utilising the capital allowances regime, and planning any large capital purchases to ensure they maximise the tax reliefs available.
For capital expenditure incurred from 1 April 2021 until 31 March 2023, companies can claim 130% on qualifying plant and machinery investments. This is under the temporary ‘Super-deduction’ capital allowance, which means that companies can save an additional 30% of tax reliefs on qualifying capital assets – the timing of the purchase will be worth considering if you are a business owner looking to purchase capital assets in the near future! Get in touch to discover more.
R&D tax relief
Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. R&D can take place in all sorts of business sectors, although there are very specific rules to what constitutes R&D. There is a breadth of different types of claims that can have a positive tax impact on your business.
Companies that spend money developing new products, processes or services; or enhancing existing ones, may be eligible for R&D tax relief. If you’re spending money on your innovation, you can make an R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction based on your trading profits. Furthermore, if you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.
If this is something you would like to explore further with us, please get in touch.
Profit extraction and how the shareholders and directors of the business are remunerated can have a significant impact on both the profitability and tax liabilities due from the financial statements. Ensuring that the available allowances are utilised and tax reliefs are maximised can dramatically reduce the tax costs of any remuneration package.
The pre year end plan should include consideration of any personal pension planning opportunities. Limited company directors can take advantage of corporation tax savings on any personal pension plan payments made in the financial year, with current corporation tax rates at 19%, a £10,000 pension contribution will save £1,900 in corporation tax. Alternatively if you are a sole trader, you may be able to take advantage of potential increases to your basic rate tax band. You may also be able to carry forward some unused allowances from a previous tax year.
It may be worthwhile speaking to an independent financial advisor who are able to provide financial planning services to help you achieve both your business and personal goals. Please get in touch if you need any further advice on finding the right independent financial advisor for you.
As you can see there are many benefits to pre year end planning, and as part of our internal processes at Direct Peak we like to contact our clients to review their financials before the end of their financial year to plan ahead accordingly. This also gives clients an opportunity to let us know how we are performing, and what we can do to support the business and directors in the coming year to ensure they hit their goals. We don’t charge extra for this meeting, as it’s included as standard in our monthly fixed fee.
Let me know by getting in touch below if your current accountant has ever contacted you to plan a ‘pre-year-end meeting’ and if you need any guidance forward planning to maximise the opportunities available.