💰 Reduce Your Company’s Taxes Before the Financial Year Ends!
- Martin van Vuuren
- Jan 30
- 3 min read
Year-End Tax Planning for UK Limited Companies
With the financial year-end approaching, now is the time to optimise your companies' tax position. Effective planning reduces your tax liabilities, maximises reliefs and ensures compliance with HMRC. By strategically managing your income, leveraging deductions and preparing for tax changes, you can reduce your tax burden and strengthen your company’s financial position.
Here are key strategies to consider before the year closes:
1. Timing of Income and Expenditure
Accelerate Expenses: Bring forward planned expenses (e.g. repairs, marketing, or staff bonuses) to reduce this year’s taxable profits.
Defer Income: Delay issuing invoices for income that can reasonably fall into the next financial year, where appropriate.
2. Employee and Director Benefits
Pension Contributions: Make employer pension contributions to take advantage of corporation tax relief and reduce taxable profits.
Bonuses: Consider paying bonuses to employees and directors before the year-end, ensuring proper PAYE and NIC compliance.
Tax-Free Benefits: Provide tax-free employee benefits, such as workplace charging points, mobile phones, or cycle-to-work schemes.
3. Dividend Planning
Optimise Dividend Payments: Ensure dividends are declared in a tax-efficient manner, balancing against personal tax rates and allowances for shareholders.
4. Review Losses and Group Relief
Carry Back/Forward Losses: Utilise trading losses by carrying them back (up to 1 year) or forward to reduce profits in other periods.
Group Relief: Offset losses within a group of companies to reduce the tax liability of profitable group entities.
5. Gift Aid Donations
Donate to registered charities to benefit from tax relief on donations.
6. Dividend Allowance and Director Loans
Director’s Loan Account: Repay overdrawn director loans within nine months of the company’s year-end to avoid Section 455 tax at 33.75%.
Use Dividend Allowance: Ensure shareholders make full use of the annual dividend allowance.
7. Maximise Allowable Deductions and Reliefs
Capital Allowances: Claim annual investment allowance (AIA) for qualifying assets like machinery, equipment, or software. The AIA cap is £1 million until March 2026.
Research & Development (R&D) Tax Credits: Claim R&D tax relief if your company undertakes qualifying R&D activities.
Patent Box Relief: If your company earns income from patents, consider applying for a reduced corporation tax rate of 10%.
Training and Development: Claim tax relief on staff training costs that enhance business productivity.
Bad Debts: Write off irrecoverable debts and claim them as an expense to reduce taxable profits.
8. Use Tax-Advantaged Investments
EIS/SEIS: If applicable, invest in qualifying companies under the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) for corporation tax deductions.
9. Review Company Structure
Separate Income Streams: Consider restructuring the business to take advantage of lower tax rates or reliefs.
Subsidiary Planning: Set up subsidiaries to benefit from group relief or specific reliefs (e.g. for R&D).
10. Consider Capital Gains Tax Planning
Asset Sales: If planning to sell an asset, time the sale to maximise available reliefs or defer tax liabilities.
11. Plan for Corporation Tax Changes
Ensure you account for changes in corporation tax rates (e.g. the 25% main rate for profits over £250,000 from April 2023) when planning profits.
12. VAT Considerations
VAT Schemes: Review your VAT scheme (e.g. cash accounting or flat rate scheme) for suitability.
Capital Purchases: Consider making capital purchases to reclaim VAT if applicable.
13. Review Non-Tax Considerations
Profit Extraction Strategy: Balance salary, dividends and benefits to optimise personal and corporate tax efficiency.
Audit Thresholds: Manage turnover, assets and employees to avoid unnecessary audit requirements.
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nice!