Year end tax planning for companies
Why consider tax planning?
In general, tax planning for companies may result in:
- minimising the companies tax liability;
- utilising losses and reliefÔÇÖs efficiently within a company; and
- deferring tax payable by the company to the latest date possible.
When should the company consider tax planning?
Tax planning for companies should be an ongoing process but generally a good time to consider this is shortly before the company’s year end.
It may be that decisions taken prior to the year end will influence the results shown in the company accounts.
The Emergency Budget 2010
As a result of the Emergency Budget 2010, there a now more planning opportunities to consider.
Changes that will affect all companies include:
- the reduction in the main corporation tax rate from 28% by 1% every year for four years to 24% in 2014/15.
- the reduction in the small companies rate of tax to 20% from 1 April 2011.
- the reduction in capital allowances from 20% to 18% on main pools, and from 10% to 8% on special rate pools, from 1 April 2012.
- the reduction in the annual investment allowance of ┬ú100,000 in 2010/11 to ┬ú25,000 from 1 April 2012.
Tax planning opportunities
If expenditure is going to be incurred shortly after the year end, you may wish to consider bringing this forward.┬á┬áIf the expenditure is incurred prior to the year end you will advance the tax relief by a full 12 months.
Generally, the types of expenditure to consider bringing forward include:
- special contributions to a company pension scheme
- building repairs and redecorating, etc
- advertising and marketing campaigns
- redundancy and closure costs
- any other item of expense which is tax deductible
You should seek further advice if you are considering accelerating the payment of bonuses to directors.
Deferred revenue expenditure
It sometimes may be considered appropriate in accounting terms to defer revenue expenditure incurred in a particular year and allocate it to later years e.g. significant repairs expenditure might be spread over the years that are going to benefit from it.
Though the expenditure may be revenue in terms of tax, if it is deferred and shown somewhere on the balance sheet, it can only be relieved for tax purposes┬áas and when┬áit is charged to the profit and loss account in accordance with the same generally accepted accounting practices. Generally this would be when the expenditure is amortised or depreciated.
If┬áyou are likely to incur such expenditure, please contact us to discuss in your plans in detail.
It may be beneficial for the┬ácompany to accelerate expenditure on which capital allowances are available so that it is incurred before rather than after the year end. The full annual allowance may be claimed even where the asset is purchased just before the balance sheet date.
As mentioned above, the capital allowance rate and AIA relief are being reduced from 1 April 2012.
There a certain items of income, such as overseas dividends, that are only taxable in the year in which they are received or credited to the taxpayer, rather than in the year in which they accrue. In certain circumstances, therefore, it may be beneficial to defer receipt of such income until after the company’s year end.
Charitable donations made to registered charities will attract tax relief at the companyÔÇÖs highest rate.┬á┬áIt should be noted however; there no tax relief will be obtained if tax losses are incurred.
Capital acquisitions or disposals
If the company is considering buying or selling capital assets which will fall under the capital gains regime i.e. land and property, please contact us as soon as possible to discuss your plans and the planning opportunities in detail.
If you consider changing cars at any point, please let us know in advance. ┬áDepending on the business mileage that you travel and the fuel you use it may be┬ábeneficial for the company to own/lease the cars rather than you personally or vice versa. We can advise you on the best route for ownership and purchase mechanisms.
There are a couple of schemes in operation by HMRC that enable you to reward your staff in cash without any PAYE/NIC implications and where the company obtains tax relief.
Encouragement Awards┬á-┬áAn encouragement award is an award made to an employee for a suggestion that has merit or that shows special effort on the employeeÔÇÖs part. Encouragement awards are exempt from tax and NICs up to a limit of ┬ú25 and┬áthere┬áare no reporting requirements.
Financial Benefit Awards – A financial benefit award is an award made to an employee for a suggestion that meets the following three conditions:
- it relates to an improvement in efficiency or effectiveness
- you must have decided to adopt the suggestion
- you must reasonably expect the suggestionÔÇÖs implementation to lead to a financial benefit
Financial benefit awards are exempt from tax and NICs up to the┬ágreater┬áof the following, subject to an overall limit of ┬ú5,000:
- 50 per cent of the financial benefit you reasonably expect the suggestion to lead to in the first year following its adoption
- 10 per cent of the financial benefit you reasonably expect in the first five years following adoption
If you make a financial benefit award up to the maximum exemption explained above, then you have┬áno reporting requirements and┬áno tax or NICs to pay.
There are certain restrictions if you make more than one award.
A company will receive tax relief and there is an exemption from tax, NICs and reporting if you provide a party or similar function for employees that meets the following three conditions:
- itÔÇÖs an annual event, such as a Christmas party or summer barbeque
- the event is open to all of your employees
- the cost per head of the event isnÔÇÖt more than ┬ú150
If the amount exceeds ┬ú150 per head the whole amounts become taxable. ┬áYou can provide more than one annual event providing the┬ácombined┬átotal does not┬áexceed┬á┬ú150 per head.
Seasonal Gifts/Trivial Benefits
There is no lower limit beneath which benefits are not taxed. However, you can apply to HM Revenue & Customs (HMRC) for agreement to allow you to exclude certain benefits from your reporting on the grounds that theyÔÇÖre trivial.
An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. ┬áAll of these gifts can be treated as trivial benefits.
Other tax planning matters
When preparing your tax computations Riley will of course review the position to establish if there are any additional tax planning points e.g.┬áclaim for trading losses to be set against profits of the same accounting period or against profits of earlier accounting periods.
If you would┬álike┬áto discuss any of the points, please do not┬áhesitate┬áto contact Bernice Constantine on 01752 203652 or Nicola Cowie on 01752 203600.