How to maximise your tax reliefs as your year end approaches
Staying on top of the tax benefits you’re entitled to can be a daunting task. Knowing what your options are is often half the battle
James Lindley CEO, Castell Wealth Management
Reading Time 4 minutes
Recent yo-yoing rates in Income, Corporation and Dividend Tax make it more important than ever to speak to an experienced tax adviser to find out what you can claim relief on and how you can reduce your taxable income.
Simon Martin, Chartered Financial Planner at Technical Connection, a subsidiary of St. James’s Place, says, ‘It’s a strange time. We do have clients wondering what’s going on and what will happen next. However, it does demonstrate the importance of ongoing advice – especially with many companies’ financial years ending on 31 December and owners wondering how to maximise their benefits.’
Andy Gibbs, Head of Group Technical at TaxAssist Accountants, says, ‘Allowing sufficient time before your year end means you can estimate your results with enough accuracy to plan appropriately. These are fast-moving times. With jittery financial markets and political turmoil, firms will need clarity on these critical tax issues so they can plan.’
With this in mind, here are the some of the ways you can maximise your tax benefits before the end of the year.
Pensions
You should start your financial year intent on using all your available allowances and exemptions. Funding your pension contributions every month should be a priority as these come out of your company’s pre-tax profits.
Simon Martin says companies often don’t know where they are financially until the end of the financial year, making it a good time to discuss their position. For example, if you have excess profits towards your year end, you can fund more pension contributions up to your annual allowance of up to 100% of your earnings, capped at £40,000.
Minimise income, maximise costs
If your company uses accrual rather than cash accounting, you should avoid paying tax on income you will never receive by writing off any bad debts. If your company plans any expenditure for early in the next accounting year, you could also bring it forward to advance your tax relief by 12 months.
Investment allowance
Companies can claim a temporary super deduction on investments in qualifying plant and machinery incurred between 1 April 2021 and 31 March 2023. This provides tax reliefs of up to 130%.
Simon Martin says, where applicable, the value of this tax break is potentially greater than the expenditure, which makes it attractive. Plus, the things you invest in should help your business grow.
Research and development tax credits
Another attractive break for SMEs – every £1 of qualifying R&D spend in a profitable company yields a deduction of £2.30 against taxable profits. If you’ve developed new or improved products or processes and want to know what qualifies as R&D expenditure, check if you’re eligible.
Remuneration planning
You can avoid several fiscal traps by planning efficient profit extraction. When considering how to withdraw money from your company, aim to keep your blend of salary and dividends as tax efficient as possible.
Martin says, ‘Small-limited-company owners tend to pay themselves a small salary and greater dividends because dividends aren’t subject to employer or employee National Insurance. For many, that’s still an effective remuneration structure. New Corporation Tax rates came in from April 2023, which made this approach less attractive for companies with larger profits and your position at this point should be assessed.’
He adds that if you can employ your spouse or another family member legitimately, that’s also a tax-deductible expense, and you could pay them a tax-efficient pension contribution.
Start-up allowances
New companies can access a range of special tax benefits, although these are often misunderstood, so advice is crucial.
Share schemes and employee benefits
SME owners can offer staff the chance to own shares in the business tax-efficiently, which also helps align employee and employer goals to boost performance. Several schemes are available, including save as you earn, company share option plans, share incentive plans and enterprise management incentives. Planning is required to choose the most appropriate for your needs.
Simon Martin also recommends looking at benefits such as group life and medical insurance, as they’re a way to attract and retain great staff and are generally tax efficient.
VAT
Depending which VAT scheme you use – cash accounting or flat rate – you can delay the time at which VAT becomes payable.
Get the right advice
As a business owner, you should also stand back and understand your ultimate destination and whether you’re still on track. Let’s say your financial adviser recommends that you need £1.5 million by age 65 to retire on the lifestyle you want, it’s important for your tax adviser to know this as it feeds into their advice.
James Lindley CEO, Castell Wealth Management
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