Tax planning for year end: Reducing your corporation tax bill

23 March 2021

Michael Lansdell discusses some options for legitimately reducing your corporation tax bill.

Michael Lansdell discusses some options for legitimately reducing your corporation tax bill.

Your company might have its financial year ending soon, and despite the challenges, you could still be expecting year-end accounts to show a profit. If so, great and – even better – there are steps you can take to legitimately reduce your corporation tax (CT) bill.

Could any of these work for you?

Tax saving
When you’re doing your planning, ensure you’ve explored any tax-saving opportunities that could be created by clever timing. Know that, for accounting purposes, tax relief for some expenses might be given a different financial year to that in which they were recorded.

An example:
Your limited company’s financial year ends on March 31, 2021, but you intend to buy a new company car in the summer. If you sign the purchase agreement by March 31, you could claim the tax deduction (capital allowances) for the full cost of the car in this financial year too, as long as the payment is made within four months. This could apply to other kinds of equipment but note that the four-month rule does not apply to hire purchase (HP) or similar purchase arrangements.

Directors’ pensions
Any pension contribution paid by your company by the end of its financial year will reduce its tax bill – but you’ll have to keep a rule in mind to avoid falling into a tax trap. For most types of expense, you can accrue a deduction – so, claim for it in the financial year that you committed to it even though it won’t be paid until afterwards. However, when it comes to pensions, a deduction is only allowed for the financial year in which it is paid to the pension company. Speak with a pensions adviser for clarity on this.

Write off some stock
The end of the financial year is a great motivator for a stock take because the lower the value of your stock at your year-end, the lower your corporation tax bill will be. My tip is to value unusable materials at zero, and for any goods you expect to sell for less than they cost, they can be included in your accounts at their sale and not cost price.

Directors’ bonuses
If you award a bonus, for extra salary for the director(s), it need not cost your company anything straight away, although it will reduce your CT bill. This could work by proposing a bonus/extra salary, subject to approval of the company’s accounts, which means that you won’t need to pay tax/NI on it until the time when the accounts are finalised. You can defer the approval date – and make a PAYE report (then pay the tax/NI due) then. You won’t even need to actually pay the director their bonus/extra salary either, they can leave the cash in the company for as long as they wish.

It’s all about creative, clever thinking and looking at what could work for you, for your current circumstance and with regards to your future plans. To legitimately reduce your CT bill, along with other tax-saving strategies and ways to optimise your business and personal finance, speak with the experts at Figurit. We have the knowledge and experience to support you, working as part of your team to help you recognise exciting opportunities.

Most of us will be glad to put the last financial year behind us, but you still might be able to use it to your advantage as part of your preparations for a successful, and hopefully more stable, period ahead.

For more information call Figurit (formerly known as Lansdell & Rose) on 020 7376 933.