Corporation tax planning

With the levels of profit achieved by the companies in the survey, tax becomes a substantial cost. 

Like any other cost to the business, the magnitude and timing of payment of the tax needs careful managing.  Pre-year end planning is key.

The rate of corporation tax drops to 20% for all UK companies from 1 April 2015, regardless of size or number of associated companies.  For those companies with a year end on or before 31 March 2015, it is worthwhile considering accelerating tax allowable deductions in order to obtain tax relief at the higher rate and delay payment of tax.  For example, the following deductions can be achieved without accelerating the payment:

  • Review stock and debtors to identify any specific items that can be provided for, such as obsolete stock or irrecoverable debtors and document as appropriate.
  • Issue redundancy notices before the end of the period to ensure a tax deduction for those costs not yet incurred.
  • Minute any bonuses to be paid relating to the period prior to the year end to demonstrate an obligation to pay the bonuses.
  • Consider any deductions that may be available on the exercise of employee share options.

 In addition, with the Annual Investment Allowance which currently gives 100% relief for up to £500,000 of expenditure on qualifying plant and machinery being relegated to £25,000 from 1 January 2016, careful consideration to the timing of capital expenditure is critical.  Also, consider the availability of research and development allowances which offer very generous reliefs, and are available to a surprisingly vast number of industries.

With the ever changing horizon of the availability of reliefs from corporation tax, it is critical to keep in close contact with your tax adviser, in particular in respect of matters that need attention prior to the company’s year-end.