The end of the tax year is approaching fast so it’s vital that you make sure you have taken advantage of any tax reliefs available and have plans in place to reduce your tax liabilities as far as possible. Here are some business planning points to consider, some of which may need your attention before 5 April 2022:
Annual Investment Allowance (AIA)
Many businesses can claim AIA on a portion of most plant and machinery expenditure. AIA applies to all business types/sizes with some restrictions to prevent multiple claims. The temporary increase of £1 million in AIA from January 2019 to December 2021 has reverted back to £200,000 from January 2022, so the timing of purchases needs consideration. Businesses with accounting periods that cover 1 January 2022 also need to carefully calculate the allowance on two rates.
Plant and machinery super-deduction
Incorporated businesses that invest in qualifying plant and machinery between 1 April 2021 and 31 March 2023 can claim a super-deduction of 130% that would normally be 18% under the Writing Down Allowance. For investments that usually qualify for 6% special rate Writing Down Allowance, a first year allowance of 50% applies.
Writing Down Allowance (WDA)
Expenditure that doesn’t fall under AIA or super-deduction is covered by the main rate pool or special rate pool of WDA. Higher emission cars, long-term assets and integral building features come under the special rate pool and other expenditure on plant and equipment including some cars is covered by the main rate pool. Up to £1,000 of WDA can be claimed on any unrelieved expenditure of £1,000 or less in the main or special rate pool.
Research and Development (R&D) Tax Credit
A wide range of research and development investments in your business are eligible for R&D Tax Credits but the rates vary for SMEs and larger companies. For SMEs paying 19% corporation tax, there is an effective tax relief of 43.7% (a tax deduction of 230% on the expenditure). If an SME is not in profit, the tax relief is effectively worth 33.35% of the expenditure as it can be converted to a tax credit payment. This is capped at £20,000 plus 3x the company’s relevant expenditure on employees.
Large companies are able to claim a 13% taxable credit on applicable expenditure made after 1 April 2020 under the R&D Expenditure Credit (RDEC) scheme. If an SME can’t use the R&D Tax Credit system because it has received a financial grant for the same project, it may be eligible for relief under the RDEC scheme.
IR35 or Off-Payroll Working Rules
These new rules came into force for the private sector from 6 April 2021. They stipulate that the end user of services provided by an individual via a personal service company is responsible for determining that worker’s status and for deducting income tax and making national insurance contributions.
Discretionary expenditure timing
You may wish to consider accelerating the tax relief on discretionary spend such as work on your website, bonuses and lump sum pension contributions. Of course you need to balance out the cash flow implications and also consider upcoming increases to corporation tax rates (which makes spending money cheaper after tax) when contemplating significant expenditure.
As with all tax planning points, we advise business owners and managers not to leave actions until the very end of the tax or financial year. There may be advantages to advancing or deferring expenditure around the year end period to maximise your tax position. It is also wise to assess the benefit of making additional pension contributions and the way you take profit (and when) from your business.
As with all tax matters, it’s wise to consult the experts for the best advice, with plenty of time to make any necessary changes. CRM has many years’ expertise in business tax planning and would welcome the opportunity to talk through your numbers. Call the experts on 01865 379272.
