With March being one of the most common year ends for companies, and the new tax year fast approaching, here are five pre-year end planning tips to help reduce your overall Tax and National Insurance bill.
1. Remuneration planning Remuneration planning should be considered where possible before the year end. Although dividends do not reduce taxable profits, for a dividend to be correctly declared, a shareholder resolution should be properly passed on the date the dividend is intended to be paid. It is therefore important that dividends are considered prior to the year end or, more importantly, before the end of the self-assessment tax year of 5 April 2022.
Salaries, including bonus payments which do reduce a company’s taxable profits, are required to be paid within nine months of the year and should therefore be considered in a timely manner.
From 6 April 2022, there will also be an additional 1.25 percentage point increase added onto the rates for Class 1 employees and employers’ national insurance, as well as the tax rates applying to dividends. Consideration should therefore be given to whether it would be beneficial to accelerate declaring dividends, which could be held on loan account until the cash is actually required and could even attract interest from the company – another form of tax efficient remuneration planning.
2. Pension contributions
Pension contributions are another great way of reducing a company’s taxable profits. Unlike salary or bonus accruals, pension contributions must be paid by the year end to obtain tax relief. Any contributions paid post-year end will reduce taxable profits in the year they are actually paid, so timing is again key.
The pension annual allowance allows you to contribute up to £40,000 per tax year without incurring any income tax charges. It is also possible to utilise any unused pension annual allowances from the previous three tax years. If you would like to learn more about pension contributions, please speak to a member of our team.
3. Capital expenditure
Consider if any planned spend on capital expenditure can be accelerated to before the year end.
The Super Deduction, available up until 31 March 2023 allows certain qualifying assets (broadly brand-new plant and machinery) to benefit from 130% deduction against taxable profits.
If the Super Deduction isn’t available, it may still be possible to claim capital allowances of up to 100% under the Annual Investment Allowance.
4. Provisions
A review should always be undertaken to consider provisions such as bad debts, stock or warranty claims, etc. An example of a deemed specific provision could be a bad debt provision based on a percentage of debts if you have historical data to justify the percentage being used.
5. Donations to charity
Charitable donations made by companies will reduce taxable profits, therefore if you are planning on making a charitable donation, you could consider accelerating this payment. Charitable donations cannot create or increase a loss, therefore the timing of a donation is important.
If you would like to hear more about pre-year end planning opportunities, please get in touch.
