As the 2023-24 tax year draws to a close, now is the time for Leeds based businesses of all sizes to look at ways of trying to reduce their tax bill through efficient tax year-end planning. Below are several tax planning strategies businesses should consider.

Maximising capital allowances

Capital allowances can provide significant tax saving opportunities for businesses. The current capital allowances available include:

  • Full expensing – this offers 100% first-year relief on qualifying plant and machinery for incorporated businesses only. It is similar to AIA (see below) but does not have an annual limit. This allowance was introduced on 1 April 2023 and, at the time of writing, will end on 31 March 2026.
  • Annual Investment Allowance (AIA) – this enables businesses, whether incorporated or not, to claim 100% of the cost of plant and machinery of up to £1 million per year.
  • First-Year Allowances (FYAs) - these allow companies to claim a percentage of the cost of their plant and machinery investments in the year they are incurred, providing they meet specific environmentally friendly criteria. You can claim AIA and FYA in the same year but not on the same asset.
  • Writing Down Allowances (WDAs) – where a business has purchased plant and machinery that do not qualify for AIA or FYA, they may be able to use WDAs. This enables them to spread tax deductions over time at 18% a year as the main rate or 6% a year for the special rate of expenditure.
  • Structures and Buildings Allowances (SBAs) – where a business has bought, built or leased a building, they may be able to deduct 3% per year over a 33 1/3 year period.

Claim research and development (R&D) tax credits

Companies engaging in qualifying innovative projects or developing new products, processes, or services may be eligible for R&D tax credits. This can result in a reduction in tax liability. It's crucial to review activities and expenditures that could qualify and ensure they are properly documented and claimed.

However, the rules surrounding R&D claims have become more stringent over the past year or so, and it is best to seek professional advice from your accountant to ascertain if your project or product is likely to qualify.

Maximise pension contributions

Pension contributions are a tax-efficient way to save for the future while reducing the current tax bill. Contributions made by businesses to pension schemes for directors and employees can be deducted from taxable profits. Reviewing pension contributions before the year-end is wise to ensure they are optimised for tax relief purposes.

Consider deferring income

Businesses may benefit from deferring income to the next tax year, especially if they expect to be in a lower tax bracket. This could involve delaying invoicing or the completion of projects until after the tax year-end. However, this needs careful consideration and planning to ensure it aligns with cash flow needs and business practices.

Utilise loss relief

Businesses that have made losses may be able to claim relief by offsetting these against other profits or carrying them forward against future profits. Understanding how to utilise loss relief effectively can help reduce the tax burden.

Pay dividends wisely

For businesses operating through a limited company, considering the timing and amount of dividends can affect the company's and its shareholders' overall tax liability. Balancing salary and dividend payments to minimise personal and corporate tax liabilities requires careful planning but can be an effective way of reducing tax bills.

Keep accurate records

Maintaining accurate and timely records is fundamental to effective tax planning. It ensures that all allowable expenses and reliefs are claimed, reducing the chance of errors and the risk of penalties from HMRC.

Conclusion

As the end of the 2023-24 tax year approaches, UK businesses should actively engage in tax planning to minimise their liabilities. By considering the strategies outlined above, businesses can take proactive steps towards optimising their tax positions. However, tax laws are complex and subject to change, so it's advisable to consult an accountant or tax professional to ensure that planning is effective and compliant with current regulations. This will help identify the most beneficial tax-saving opportunities and implement them effectively within the relevant tax regulations.

How can DWilkinson&Company help?

Over the years, we have saved our clients tens of thousands of pounds with effective year end tax planning. However, in order to identify savings for the 2023 – 24 tax year, businesses must put in place their tax strategies by the end of March.

If you think you could be paying too much tax, please get in touch. We can find out more about your business and discuss the options you have. Please call 0113 320 0001 or email office@dwco.co.uk.