Cisco Start-up Hub Problem Page: What should I be doing to prepare for the new tax year?
The sun is out, the clocks are going forward, and people in the office have started talking about their hay fever again. All of this can only mean one thing: yep, we’re about to enter a new tax year.
With a new government budget to contend with, this can be a particularly busy time for finance departments – and even more so for start-ups and SMEs with employees who might be juggling multiple roles.
To ease some of that pressure, we asked Michael O’Brien, a partner and head of technology at Kreston Reeves, for some tax planning tips for the year ahead…
We’ve set out some key tax planning tips focussed on action you can take as your year end approaches – they are worth considering, as sensible year end tax planning can both save you tax payments and have significant cashflow benefits.
The focus here is on small and medium sized companies, but if your business is unincorporated (i.e. if you operate as a partnership or sole trader) the timing tips are equally relevant, with tax and NIC charges at up to 47% of your profits at stake.
Think about timing
As corporation tax rates are falling from 20% to 19% from the 1st of April 2017, accelerating expenditure and deferring income can save you tax, in addition to delaying your tax liability. There are a few areas to consider here:
Capital expenditure timing
- Think about bringing your capital expenditure forwards into the year, especially if you haven’t used your annual investment allowance in full yet (which has been set at £200k per year from the 1st of January 2016 onward).
- Can you delay any disposals until after your year end? This will enable you to maximise any writing down allowances in the year, and delay the tax on any chargeable gains.
Revenue expenditure timing
- Accelerate planned revenue expenditure into the year, for example with a planned programme of repairs.
- If you plan to pay a bonus for the year, make a bonus accrual: a tax deduction is available where the bonus is paid within 9 months of year end.
- Look at your provisions: will there be any obligations at the year end for which you can provide in your accounts? Tax relief can be obtained for specific provisions properly included in the accounts.
- Tax relief is only available for pensions when payment has been made in the year – accelerate tax relief by paying your pension provider before the year end.
A few issues that are relevant to companies
Depending on how you’ve set up your business – as a Limited Company, Sole Trader, or Limited Liability Partnership – there may be other benefits you can look to make the most of when planning for the new tax year.
Are you entitled to R&D relief?
- Have you done any R&D? There is extremely generous R&D relief available to small and medium companies. For these purposes, these are companies with fewer than 500 full-time employees and with either an annual turnover under €100m or a balance sheet total under €86m. If that sounds like your start-up, then this is an opportunity not to be missed.
- The time limit for making an R&D claim is two years after the year end in which you completed the R&D. Time is therefore running out for earlier years, so if you think you may qualify for R&D relief, check now before you miss out!
Overdrawn directors loan account?
- Any loans outstanding at the year end are potentially liable to (repayable) s455 tax at up to 32.5% of the outstanding balance. You should consider repayments either before the year end, or within 9 months of the year end.
- The year end is also the date at which you can recover s455 tax previously paid (where the loan was repaid or written off in earlier years).
Have you used your dividend allowance?
- From the 6th of April 2016, the first £5,000 of dividends each individual receives in a tax year has been tax free.
- Consider the timing of your dividends to make the most of this tax free allowance (on the assumption your company has the distributable reserves it needs).
- It’s worth taking advantage of the tax free allowance if you can – it won’t be this generous for long, as it will be falling to £2,000 from the 6th of April 2018 onward.
Finally, a little admin….
Your corporation tax return for last year will generally be due by your current year end (there are some special rules for long accounting periods). Check your corporation tax return for last year has been submitted – HMRC will impose penalties if it’s late!
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