Yet, if there is ever a time of year to stop and take stock, it is actually a couple of months (ideally!) before you reach your financial year-end. By planning a little in advance you can make sure there is more in the pot for you and your business.
Here are my top tips for year-end planning:
Bring forward expenditure
Expenses incurred before your year-end can reduce your current year’s tax liability instead of next year’s. Bringing forward expenditure by even a few weeks on items such as building repairs, advertising, that marketing campaign that you have been putting off, can accelerate the tax relief by twelve months.
Maximise capital allowances
For expenditure on business assets, including vans, IT equipment and office furniture (but not cars) you may claim a full 100 per cent deduction of up to £500,000 against your profits. If you are planning on any significant spend in these sorts of areas then again, it is worth bringing this forward where possible before your business’ year end. The £500,000 allowance ends on 31 December 2015 and the rate from 1 January 2016 has yet to be announced so it is worth keeping an eye out for this.
Also remember that hire purchase and lease purchase may provide a useful method of financing the purchase of an asset. Plant and equipment purchased on hire purchase will qualify for capital allowances on the full purchase price, even if the company has paid only the deposit.
Decide to pay bonuses to directors and staff
If you decide to reward your staff (or yourself, of course) with a bonus payment, then in calculating your taxable profits for the year, a provision can be made for the cost of this even though you have until nine months after the year end to actually make the payment.
Make pension contributions
Pension contributions are one of the most significant tax planning opportunities available and by making contributions into either a director or employee’s pension scheme before your business’ year end, you can reduce the taxable profits of the business. At the same time, pension contributions also offer substantial income tax and National Insurance savings and are an alternative option to rewarding your staff rather than the tradition bonus mechanism.
Look at your own remuneration package
If you are operating as a limited company and you are a shareholder, then you may wish to consider replacing any year-end bonus to yourself with a dividend. Although the payment of a dividend is not a tax deductible expense and will therefore not reduce your company’s corporation tax liability, you would not only save on the National Insurance but would personally benefit from the lower income tax rates on dividend income. In almost all cases, dividends are a very tax efficient way to take your remuneration.
Don’t forget the admin
If you are operating as a sole trader or a partnership, your year-end will most likely coincide with the end of the fiscal tax year, i.e. 5 April and you will have until the following 31 January to file your tax return and to settle any tax due. However, if you are operating as a limited company, then your year-end could fall at any time of the year. Make sure you know when this is, as your corporation tax return will be due for filing and any tax due for payment nine months and one day after the year-end.
As a director/shareholder of a limited company, you will almost certainly be required to complete a personal tax return for the fiscal tax year as well as your company tax return.
Working with your accountant to avoid your tax returns being filed late and paying any tax owed on time will prevent you from being charged unnecessary penalties and interest charges; one very easy way not to waste money.
So there you have it. No complex transactions to fathom, just some simple planning strategies that can, with a bit of thought and a breather from all the running, really make a difference to your tax bill and cash flow.
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