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Getting ready for your Company Year End

Welcome to the third of our ‘5-minute read’ series. The aim of these communications is to provide you with a quick update to assist you in keeping on top of upcoming deadlines and/or changes. In our third update we outline some points to consider to minimise a Corporation Tax liability as the year end approaches.

Capital Expenditure

Under Capital Allowances rules, a business is entitled to an Annual Investment Allowance of up to £1m per tax year. Annual Investment Allowance provides 100% tax relief on expenditure on Plant and Machinery in the year of purchase.

If the relief is not used, then it is not carried forward into the next financial year. Also, if the amount is exceeded then the tax relief obtained is spread over many years.

It is therefore important to plan, where commercially viable, expenditure on Plant and Machinery to ensure that as much tax relief as possible is obtained as soon as possible.

From the 1 April 2021 until 31 March 2023 purchases of new and unused plant and machinery will qualify for the 130% Super Deduction, further enhancing the amount of relief that can be obtained from capital investment.

Post 31 Match 2023 purchases of new and unused plant and machinery will qualify under the Full Expensing system, providing up to 100% relief on acquisitions with no upper limit.

Company Pension Contributions

Company Pension Contributions are the anomaly in Corporation Tax as tax relief is only available when the contributions are paid rather than on an accrual’s basis.

Therefore, a company needs to plan when considering discretionary pension contributions. For example, a contribution is paid on the date of the year end then this would be allowed as a deduction against Corporation Tax in the year incurred. If it was paid at the start of the next tax year then the relief would be delayed until the end of the next tax year.

Therefore, where the directors of the business are also the owners it is imperative to ensure that if the commercial decision has been made to make a pension contribution that the payment is physically made before the year end.

R&D Tax Relief

R&D Tax Relief provides a company with additional tax relief on expenditure that has been incurred on appropriate R&D activities. This relief can be claimed within 2 years of the company year end.

It is therefore important to consider activities that have been undertaken in early tax years to determine if a claim can be made before the period elapses. For example, if you have a December year end then the 2020 year end will be unavailable for amendment from 1 January 2023.

The tax relief can provide an additional 24.7p in tax relief for every £1 spent on R&D activities, not checking that you are eligible for the relief could prove a costly mistake.

We have experts in this field that can consider the activities undertaken and assist with the preparation and submission of the claim to HMRC.

Business Expenses Incurred Personally

Towards the company year end is a great time to consider if you have personally incurred business expenditure.

This needs to be considered to ensure that the maximum Corporation Tax liability is obtained in the company as well as potentially repaying the amount incurred from the company tax free.

One area to consider is mileage that has been incurred on business activities. Where you incur the running costs of the motor vehicle personally then a claim can be made to the company to refund mileage incurred on business activities. This is at a rate of 45p for the first 10,000 miles and 25p thereafter.

Care will need to be taken as HMRC will require to see records of the mileage incurred should they enquire into the claim being made but can result in tax free extraction of funds from the company whilst reducing the company Corporation Tax liability

Reward Staff

There are many benefits that can be provided to staff as well as directors without incurring tax personally but benefitting from Corporation Tax relief. These include, but are not restricted to, the following:

  • Providing mobile phones (no more than one per employee)
  • Up to £150 per person per year for staff parties/events
  • Making cash awards for contributions to a staff suggestion scheme
  • Providing workplace nurseries and crèches

Considering these before the year end can help reduce the Corporation Tax position whilst providing employees with a boost in motivation and commitment.

If you require further information or wish to discuss the above in more detail please contact yous usual Advisor or a member of the team below.

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Getting Ready for Your Company Year End