There are a number of ways in which you can legally reduce your corporation tax bill, although certain of these require to be thought about before the business’ year end. Make a point to set aside some time a couple of months before your business year end and consider the following matters in order to ensure that the maximum tax relief is received as early as possible:
- Is there any capital expenditure I need to incur in the near future? For the most part, capital expenditure can qualify for 100% tax allowances (up to 31/12/15 this allows up to £500k of expenditure, £25k thereafter) and so, making these purchases before the year end can dramatically reduce your next tax bill. It is important to note that this allowance does not apply to premises, land or cars.
- Is my stock overvalued? If your stock is overvalued for any reason, this inflates the profit reported in the business and, therefore, the tax due. Reviewing stock and writing off old, obsolete or slow moving stock lines will reduce the overall profit and the corresponding tax due.
- Are all of my debtors likely to pay? If you are approaching your year end and there are a number of outstanding sales invoices which you are uncertain about in relation to their recoverability, including a provision against these specific debts “going bad” will be treated as an expense and reduce your tax liability.
- Are there any bonuses due based on this year’s performance? If you have had a busy year and there are likely to be bonuses paid to staff based on this performance, make sure these are provided for before your year end to ensure that the tax relief is attained in the current year.
- Have I maximised my pension contributions this year? In the case of owner managed businesses, this is an area we believe is vitally important in relation to personal planning and tax planning. If the company makes a pension contribution into your pension fund on your behalf, this is an allowable tax deduction for the business while also aiding towards your retirement income. Pension regulations have changed significantly in the very recent past and we are now seeing an increasing number of clients use pensions simply as an extremely tax efficient way to save for their retirement. There are very specific rules in relation to this, so specialist advice should always be sought.
If you have any queries on any of the points noted above, please contact David Anderson who will be happy to advise on this. You can contact David by telephone on 01324 441260 or by email on email@example.com.