COMPANY TAX SAVING

Expenditure - there are several ways in which a company can maximise deductions for expenses in an accounting period. Planned expenditure, for example on repairs, could be brought forward or, in some instances, a provision could be made in the accounts for future costs where these costs can be clearly quantified.

The following items merit particular review:

• Bad debts
• Stocks
• Closure and redundancy costs
• Bonuses
• Pension contributions

Capital expenditure which is proposed should be reviewed and, if necessary, expenditure brought forward that qualifies for capital allowances, so that it is incurred in the current accounting period.

100% allowances - Companies can currently get 100% tax relief in the year of purchase on qualifying expenditure via the Annual Investment Allowance (AIA), now permanently set at £1,000,000 a year since 1 April 2023 (having been due to revert to £200,000 before this change was made permanent).

Any balance of expenditure above this threshold attracts writing down allowances, currently 18% a year for main pool assets or 6% for special rate pool assets.

Since April 2023, companies (though not unincorporated businesses) can also claim Full Expensing — a 100% first-year allowance on qualifying new main rate plant and machinery, with no upper limit. This can be more valuable than AIA for larger capital expenditure programmes that exceed the £1,000,000 AIA cap, and it's worth reviewing which relief (or combination) suits your specific spending pattern.

Trading losses - where the company is likely to incur tax losses in the current accounting period, the planning measures outlined can be used to increase the amount of the tax losses available for relief.

• In general, trading losses can be carried back to the immediately preceding year.
• The amount of losses that can be carried back to the immediately preceding year is unlimited.
• Trading losses which cannot be relieved by surrender or carry-back have to be carried forward to be set against future profits.

Capital gains - A company’s capital gains are chargeable to corporation tax.

Rollover relief - it may be possible to defer a gain with  reinvestment in new qualifying assets.

Capital losses - A company that has realised capital gains might be able to sell investments to realise a capital loss to offset against the gains.

Timing of asset sales - it might be worth delaying the sale until the start of the next accounting period to delay the payment of tax on the gain.

Capital losses not set against gains in the current year can only be offset against future gains.

Shareholder-controlled and family companies

Some additional tax planning is possible in a company with a small number of shareholders.

• A family company should review whether it is preferable to pay dividends or salary — see our guide to director's salary and dividends for the current calculation.
• Shareholders should consider whether surplus funds should be paid out to shareholders and directors or retained in the company. This is relevant where the shareholders expect to sell the company or enter into a members' voluntary liquidation. Business Asset Disposal Relief may make a disposal of qualifying shares more attractive, charging Capital Gains Tax at 14% rather than standard rates — though the lifetime limit was reduced substantially, from £10 million to £1 million, so this relief now shelters a much smaller amount of gain than it once did.

Claims and Elections - Carry out a review of the time limits for tax claims and elections. If the time limits are missed, the company might have to pay additional tax unnecessarily. The time limits vary but the most important are those that must be made within two years of the end of a company’s accounting period. They include:

• Set-off of losses against the current or preceding accounting periods.
• Claim for enhanced tax relief for R&D expenditure.
• De-pooling of short-life assets for capital allowances.
• Capital allowances claims (made in a tax return)

Review the company's VAT position.

• Should the company be registered for VAT?
• Review the calculation basis where a company makes both taxable and exempt supplies.
• Ensure that VAT has been accounted for correctly.
• Review debtors and claim VAT relief as appropriate.
• A company with sales of <£1.35m or less could consider cash accounting.
• To reduce administration a company can opt to submit VAT returns once a year. (sales < £1.35m)
• The flat rate scheme may be available. (sales < £150k)

Company cars

The tax effects of benefit packages for employees must be reviewed regularly. The following points are among those that should be considered:

• The company car is no longer as tax-efficient as it once was for many employees, especially those with larger cars. It can be tax-efficient for employees with small, low emission cars and high private mileage. Employees could be offered a cash alternative and claim tax-free reimbursement for business mileage in their own cars.

• Free fuel for company cars - this is now a highly taxed benefit. It may be beneficial to switch to paying tax-free mileage allowances for business mileage.

Key Points - Saving tax is important but also consider:

• It is not enough for an investment to be tax-efficient: it should be a good investment in itself.
• Flexibility is desirable. Circumstances could change, and it might become necessary to unravel arrangements.
• The costs and general inconvenience that could be involved in implementing some strategies might outweigh the potential tax savings.
• As far as possible, company tax planning should be kept reasonably simple and straightforward.