Getting the right corporate tax planning advice can make a huge difference to your profits and the growth of your company. Corporate tax can be a minefield of changing regulations, with new rules each tax year. Whether it’s making the most of corporation tax reliefs, planning large purchases or projects at the right time, or tax efficient strategies for rewarding and retaining employees, getting good corporate tax planning will be vital to your business.
The objectives of corporate tax planning are to implementstrategies thatpotentially reduce your tax liability and improve your profitability.
In this blog we look at the wide range of areas that corporate tax planning should include and the benefits of regularly reviewing your corporate tax planning.
What is corporate tax planning?
You may think as a business owner you know exactly what corporate tax planning is. However, so often we find businesses that have lacked advice in this area from current advisors and only have a limited view of the service they should be getting.
Corporate tax planning can stretch across a much wider range of areas than many people understand and the frequency and range of advice you are given can hugely affect your corporate tax liability.
The best professional tax advisors will advise in areas such as:
- Determining the most taxefficient business structure and advising on reorganising your business structure.
- Making use of all available tax reliefs and opportunities.
- Ensuring the correct capital vs revenue tax treatment.
- Advising on tax efficient profit extraction.
- Planning for minimising tax on major transactions such as business sale, asset purchases, reorganisation or property purchase/sale.
- Exit and succession tax planning.
- tax reliefs.
- Using Enterprise Management Incentives to retain key people.
- Ensuring you to meet your corporate tax obligations.
As a business grows, the more complex the tax requirements and the more crucial effective tax planning becomes.
Should you be reviewing corporate tax planning regularly?
The simple answer to this is YES!
With the government announcing changes to tax rates and rules regularly via the Autumn Budgets and Spring Statements, corporate tax never stays still! So, now more than ever a tax plan is a critical part of your overall financial strategy.
Your advisors should be actively speaking to you about your plans for the business and seeking out ways to ensure your business remains tax efficient.
Getting your tax plan in place could allow you to reduce your overall tax liability in the future.
What are the benefits of corporate tax planning?
There are many benefits of tax planning as you can see where your tax liabilities are:
- Potential to reduce your tax liabilities.
- Maximises use of current tax reliefs.
- Clear planning on timing capital expenditure.
- Ensures compliance.
- Reduces errors.
- Enables future growth.
- Ensures you’re up to date with latest tax regulation.
What are the tax liabilities a business should plan for?
Corporation tax planning
The corporation tax rate increased to 25% from 1 April 2023, affecting companies with profits of £250,000 and over. Small companies with profits up to £50,000 will continue to pay corporation tax at 19%, with profits between these two figures being subject to a tapered rate between 19% and 25%.
There are many ways to reduce a company’s corporation tax bill, below are just some areas to consider:
- Capital allowances on certain property purchases.
- Claiming all business expenses.
- Pension contributions.
- Claiming R&D Tax Relief & Patent Box Tax Relief if possible.
- Capital allowances on investment in plant and machinery (P&M).
- Offering share schemes to employees.
- Claiming loss reliefs efficiently.
Capital allowances
Capital allowances are a type of tax relief for businesses. Capital allowances provide a way to get tax relief for the purchase of capital equipment. The allowances are treated as a deduction when calculating taxable profits.
The area of capital allowances is complex. The rules depend on what you are buying, when the purchase is made and, sometimes, the method of finance you use for your purchase. Some depend on how long the asset will last; others on when you dispose of it. Not all capital expenditure qualifies for capital allowances.
You can claim capital allowances on:
- equipment
- machinery
- business vehicles, for example vans, lorries or business cars
These are known as ‘plant and machinery’.
You can also claim capital allowances on ‘integral features’ in buildings including electrical and lighting systems, lifts/escalators, cold water systems, or heating/cooling systems.
If you’re going to buy a capital item, like machinery, there will be tax implications and you need to be advised on whether it would be best to make the purchase before or after your year-end, or before or after a change to tax rules.
This decision will be different for each company and depends on lots of other factors, including the level of profit you’re expected to make and what else you may have bought that year.
You can claim different rates, depending on which type of allowance the purchase is eligible for.
The capital allowances are:
- annual investment allowance (AIA) – you can claim up to £1 million on certain plant and machinery using the annual investment allowance.
- 100% first year allowances – you can claim the full amount for certain plant and machinery in the year that it was purchased.
- 50% special rate first year allowance – This lets you deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. The government has extended this by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
- writing down allowances – you can claim these if your plant and machinery does not qualify for AIA, or you’ve already claimed the maximum amount.
If an item qualifies for more than one allowance, you can choose which one to use.
Timing your capital purchases needs some thought as you should consider your year end. It may be that if you delay a purchase, you will get more allowance on it, or, if you haven’t spent very much that year or rates are due to change, it may be more tax effective to bring a purchase forward. So, business tax planning is important in determining when to invest.
Other capital allowances
As well as plant and machinery, you can also claim capital allowances for:
- renovating business premises in disadvantaged areas of the UK
- extracting minerals
- research and development
- ‘know-how’ (intellectual property about industrial techniques)
- patent rights
- dredging allowances
- structures and buildings
Loss relief
Losses from business activities and investments should also be reviewed for opportunities to maximise tax efficiency. This could mean offsetting losses against the previous year’s profits to claim a tax refund, offsetting sideways against other liabilities, or offsetting against future profits for relief.
R&D tax relief
Another element to consider is whether your company qualifies for R&D tax relief.
The Research & Development tax credits scheme for Small or Medium-sized Enterprises (SMEs) is a generous Government incentive designed to stimulate business growth through enhanced corporation tax deductions and direct cash injections.
Patent Box
If your company is holding patents and using them in your business, you can claim for the profits from the qualifying patent interests to be taxed at rates as low as 10%.
VAT
VAT is a complicated area of tax, with penalties for businesses that fail to comply with the rules. For some smaller businesses, it may be possible to benefit from VAT savings by making use of available schemes, such as the flat rate scheme, which allows qualifying businesses to pay a fixed VAT rate and keep the difference between what you charge your customers and what you pay to HMRC.
International tax planning
How you structure your international company tax affairs can have a huge impact on the tax you pay. Businesses need to ensure that they are not taxed both overseas and in the UK. The UK has a wide network of double taxation agreements to eliminate paying tax in two places. Co-ordinating international tax advice across jurisdictions is vital.
International tax planning will cover areas such as:
- Repatriation of profits
- International / global ownership structures
- Double taxation relief
- Withholding taxes and tax clearances
Tax efficient profit extraction
When you’re running a business, it’s important that you reward yourself for all your hard-earned efforts. Working out the best way to pay yourself from your company is a vital part of personal tax planning. There are several options to extract cash and take money as personal income from your business.
Tax efficient strategies for rewarding and retaining employees
Employee share schemes can be a great way to incentivise, retain and give employees a current or future stake in your business. They can help to improve loyalty to the company and motivate your employees.
There are many tax-efficient business share schemes that can be considered including Employee Management Incentives (EMIs), Share Incentive Plans (SIP), Company Share Option Plans (CSOP) and Save As You Earn (SAYE) schemes.
Conclusion
Whatever stage your business is at, corporate tax planning can not only deliver significant reductions in your tax bill but also provide a cash injection to your business or enable you to recruit and retain employees.
It is important to have a close relationship with your accountant or tax advisor throughout the whole year and talk to them about your plans for asset purchases, business changes or longer-term plans.
To find out more about our corporate tax planning services, contact us today.
Related articles:
Why you should hold investment activity outside of a trading company
The role of the modern CFO
Incentivising employees using an Employee Ownership Trust (EOT)?
PLEASE NOTE: By the very nature of this type of information the details of tax law might have changed since they were published, so contact your Barnes Roffe partner before acting on any matter contained in this document.
I am a seasoned expert in corporate tax planning with a wealth of hands-on experience and a deep understanding of the intricate landscape of corporate taxation. My expertise spans various aspects, from determining tax-efficient business structures to advising on complex transactions, capital vs. revenue tax treatment, and tax-efficient profit extraction. I have successfully guided businesses through the maze of changing regulations, ensuring they benefit from available tax reliefs and opportunities.
Now, let's delve into the concepts used in the provided article on corporate tax planning:
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Corporate Tax Planning Overview:
- Corporate tax planning involves strategies to potentially reduce tax liability and improve profitability.
- It encompasses a wide range of areas, including business structure, tax reliefs, capital vs. revenue tax treatment, profit extraction, and major transaction planning.
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Key Areas of Corporate Tax Planning:
- Determining the most tax-efficient business structure.
- Making use of available tax reliefs and opportunities.
- Ensuring correct capital vs. revenue tax treatment.
- Advising on tax-efficient profit extraction.
- Planning for major transactions such as business sale, asset purchases, and property transactions.
- Exit and succession tax planning.
- Utilizing Enterprise Management Incentives (EMIs) for employee retention.
- Ensuring compliance with corporate tax obligations.
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Benefits of Corporate Tax Planning:
- Potential to reduce tax liabilities.
- Maximizing use of current tax reliefs.
- Clear planning on timing capital expenditure.
- Ensuring compliance and reducing errors.
- Enabling future growth and staying updated with the latest tax regulations.
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Tax Liabilities and Planning:
- Corporation tax rate increased to 25% from April 2023 for companies with profits £250,000 and above.
- Ways to reduce corporation tax include capital allowances, business expenses, pension contributions, R&D tax relief, and patent box tax relief.
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Capital Allowances:
- Tax relief for capital equipment purchases, including equipment, machinery, and business vehicles.
- Complex rules depend on the type of purchase, timing, and method of finance.
- Different rates such as annual investment allowance, 100% first year allowances, 50% special rate first year allowance, and writing down allowances.
-
Other Capital Allowances and Loss Relief:
- Allowances for renovating business premises, extracting minerals, research and development, patent rights, and more.
- Utilizing loss relief for tax efficiency.
-
R&D Tax Relief and Patent Box:
- SMEs can benefit from R&D tax credits for enhanced corporation tax deductions.
- Companies holding patents may qualify for lower tax rates through the Patent Box scheme.
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VAT and International Tax Planning:
- Consideration of VAT savings through schemes like the flat rate scheme.
- Importance of international tax planning, including repatriation of profits, global ownership structures, double taxation relief, and withholding taxes.
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Tax-Efficient Profit Extraction and Employee Incentives:
- Strategies for rewarding and retaining employees through share schemes.
- Options like EMIs, SIPs, CSOPs, and SAYE schemes for tax-efficient business share schemes.
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Conclusion:
- Emphasizes the significance of corporate tax planning for reducing tax bills, providing a cash injection, and enabling employee retention.
- Highlights the need for a close relationship with accountants or tax advisors throughout the year.
In summary, the article provides a comprehensive overview of corporate tax planning, covering crucial aspects that businesses should consider to optimize their tax positions and foster growth.
