Forthcoming tax increases, rising interest rates and the cost of living crisis mean many business owners are feeling the pressure on their profits. Here, Donna McCreadie at Perrys Chartered Accountants provides her top tips for making sure your business is running as tax efficiently as possible.
Review your current structure
Given the tax changes in recent years, and the impact of the global pandemic on the many trading businesses, now could be the right time to review your structure to ensure it is still the most tax efficient and cost-effective option for your business.
Most businesses look at their structure when business is booming, perhaps moving from sole trader or a partnership to a limited company structure, but businesses can also disincorporate and move away from a corporate structure, if the tax savings are not outweighing the additional costs of compliance.
Remember though, limited companies can provide additional protection for business owners, as do limited liability partnerships, so it is important to look at the pros and cons of each option when deciding which structure is right for you.
Consider changing your year end
With Corporation Tax set to increase on 1 April 2023 to as much as 25% for companies with profits over £250,000, now could be the time to think about changing your year end to make the most of the existing 19% rate.
For example, if your company has a year-end of 30 September and profits are expected to be significantly higher in the first 6 months than the second 6 months of the year, then you could consider shortening your year end to 31 March to ‘bank’ the 19% rate on profits made to that date. Otherwise, the company’s profits will be apportioned evenly over the year, resulting in a higher tax liability over the 12 months.
Self-employed and partnership businesses with year-ends not aligned to the tax year (dates from 31 March to 5 April) are also facing a reform of the way their trading profits are taxed for income tax purposes. With plans to tax profits that are time-apportioned to the tax year, instead of the accounting period, to take effect from 2024/25, with transitional rules applying in 2023/24, it could be beneficial to assess the impact of the changes in advance and to consider a change to your year end.
Do a payroll check to see if you’re eligible for Employment Allowance
If you employ staff in your business, it’s important to check that you’re not missing out on allowances or reliefs that you may be entitled to. For example, if you are a business or charity and your employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year, or you employ a care or support worker, then you could be eligible for Employment Allowance.
Employment Allowance will reduce your annual National Insurance liability by up to £5,000. It can also be backdated by up to 4 years, so it is well worth the effort of running a check on your payroll to find out if it applies. You can do this yourself, or you can ask a bookkeeper to do it for you.
