The approach of a company’s year end is an important time to look at tax saving. Action has to be taken by that date, otherwise the opportunities could be lost.
Income - the general tax planning strategy should normally be to defer income and make full use of all available allowances and deductions.
Examples of how income can be deferred are:
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:
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 - Currently companies can get 100% tax relief in the year of purchase on the first £200,000 a year of expenditure on most types of equipment by claiming the Annual investment allowance (AIA).
|Periods from||Annual limit|
|1 Jan 2016 - 31 Dec 2018||£200,000|
|1 Jan 2019||£1,000,000|
Any balance of expenditure above this threshold attracts writing down allowances of 18% a year.
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.
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.
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:
Review the company's VAT position.
The tax effects of benefit packages for employees must be reviewed regularly. The following points are among those that should be considered:
Key Points - Saving tax is important but also consider:
Claims and Elections
Value Added Tax
Tax Planning - Key Points
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