Corporation tax doesn’t have to be a surprise at the end of your accounting period. Planning ahead allows you to manage your tax liability legally and efficiently, giving your business more control over cash flow and growth.
Timing Your Expenses
The timing of expenses can affect your taxable profit. By planning when you spend, you can maximise allowable deductions in the right accounting period.
Example: If your company is approaching year-end and you need office equipment, buying it before the period ends may reduce this year’s taxable profit, lowering your corporation tax.
Claiming Allowances
Certain allowances and reliefs can reduce your tax bill:
• Annual Investment Allowance (AIA): Claim the full cost of qualifying capital assets in the year of purchase.
• Research & Development (R&D) Relief: If your company undertakes qualifying R&D projects, you can claim tax relief or credits.
Mini example: Claiming £5,000 in R&D costs reduces your taxable profit by the same amount, saving £1,250 in corporation tax at a 25% rate.
Pension Contributions
Making contributions to company pensions for directors or employees is another legal way to reduce taxable profit.
Example: A £10,000 pension contribution reduces taxable profit by £10,000, saving £2,500 in corporation tax.
Keep Accurate Records
Efficient tax planning relies on accurate and up-to-date records. Use accounting software or work with your accountant to track profits, expenses, and allowances. This ensures you don’t miss opportunities to reduce your tax liability.
Regular Reviews
Plan for regular tax reviews throughout the year, not just at year-end. Small adjustments made early can have a significant impact on your overall tax bill.
Tip: Schedule quarterly reviews with your accountant to identify opportunities for tax efficiency and avoid surprises at year-end.
Takeaway:
Corporation tax planning is about being proactive, not reactive. By timing expenses, claiming allowances, making pension contributions, and reviewing your accounts regularly, you can reduce your tax liability legally and free up cash to reinvest in your business.
Set Yourself up for Success
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