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Year-end planning for companies

It is nearly Christmas and companies with an accounting date of 31 December have one last chance to review their affairs to reduce their tax bills.

Should expenditure be brought forward?

Are there any expenses you can bring forward and include in the year to 31 December 2014 to reduce your taxable profits and therefore your tax bill?

Examples are

• Staff Bonuses

• Pension Contributions

• Purchase of capital expenditure (See separate heading below)

Are any of your profits taxed at the marginal rate?

Reducing your profits has an added advantage if your profits are more than £300,000 and less than £1,500,000. The difference between the two rates is smaller than in the past but there is still a saving to be made.

This is because profits between the above two numbers are taxed at the marginal rate of 21.25%.

Please note these limits are reduced if you have associated companies.

There will be one universal Corporation Tax rate of 20% from 1st April 2015, subject of course to a general election!

Should you increase your losses?

Increasing expenditure may be considered to increase current trading losses to be carried back against profits from the previous accounting period.

However you also need to consider commercial considerations.

Do not spend money on things you do not need purely to save tax.

Research and Development Expenditure

If you qualify for these enhanced expenditure reliefs it is another good reason to bring forward expenditure.

For example, a company incurring revenue expenditure on research and development (as specifically defined) can obtain relief of 225% of the costs incurred.

Capital Expenditure

Capital expenditure on plant or machinery for use in a trade or other qualifying activity may qualify for a 100% annual investment allowance (AIA) or first-year allowance (FYA).

The temporary increase in the maximum AIA to £500,000 per year for expenditure incurred in the period 1 April 2014 to 31 December 2015 provides further scope for planning.

If the whole of the available allowance is not used in an accounting period the unused balance cannot be carried forward, so it is worth considering how to use the allowance as fully as possible.

A company with an accounting period of the year to 31 December 2014, the maximum for the period is, subject to below, £437,500.

No more than £250,000 can be claimed, however, for expenditure incurred in the period 1 January to 31 March 2014.

Only one AIA is available to a group of companies or to companies under common control, but you can choose how to allocate it.

First-year allowances usually only need to be considered where a company’s expenditure on plant or machinery exceeds the AIA maximum. In such a case first-year allowances should be claimed in priority to AIA, as this leaves the AIA available for expenditure not attracting FYAs.

No AIA is due on a car, but writing-down allowances at 18% per year (instead of the normal 8% rate) can be claimed for cars with CO2 emissions of not more than 130 g/km.

Should you be paying another dividend or taking a bonus?

Owners should also consider if they need to take a final dividend or bonus. This is not so time sensitive if taking a further dividend as the tax year end is the important date for personal tax planning.

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