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Due to the ever-changing tax legislation and commercial factors affecting your company, it is advisable to carry out an annual review of your company’s tax position. Pre-year-end tax planning is important as the current year’s results can normally be predicted with some accuracy and there is still enough time to carry out any appropriate action. We outline below some areas where advance planning may produce tax savings. Corporation tax Advancing expenditure Expenditure incurred before the company’s accounts year-end may reduce the current year’s tax liability. In situations where expenditure is planned for early in the next accounting year, the decision to bring forward this expenditure by just a few weeks can advance the related tax relief by a full 12 months. Examples of the type of expenditure to consider bringing forward include: building repairs and redecorating advertising and marketing campaigns redundancy and closure costs Note that payments into company pension schemes are only allowable for tax purposes when they are actually made as opposed to when they are charged in the company’s accounts. Capital allowances Consideration should also be given to the timing of capital expenditure on which capital allowances are available to obtain the optimum reliefs. Single companies irrespective of size can claim an Annual Investment Allowance (AIA) which provides 100% relief on expenditure on plant and machinery (excluding cars). The amount of AIA is currently set at £1,000,000. Groups of companies have to share the allowance. Expenditure on qualifying plant and machinery more than the AIA is eligible for writing down allowance (WDA) of 18%. Where the capital expenditure is incurred on integral features the WDA is 6%. 100% allowances on designated energy saving technologies continue to be available in addition to the AIA. A ‘Super Deduction’ tax relief temporarily increases relief for expenditure on certain items of qualifying plant and machinery incurred from 1st April 2021 up to 31st March 2023. Companies can claim a Super Deduction providing allowances of 130% on most new (unused/not second hand) plant and machinery investments that would ordinarily qualify for 18% main rate writing down allowances. They can also claim for a first-year allowance of 50% on most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances (items such as integral assets like hot and cold-water systems). Although the Super Deduction can lead to tax savings, it’s also worth noting there are a few items which may mean the Super Deduction is less attractive than anticipated. In addition, exceptions apply, most notably cars are excluded from qualifying for this relief. Any decisions about expenditure need to be based on your company’s circumstances and it is worth running some projections prior to making any significant capital expenditure. Limited capital allowances are also available for investments in certain types of structures and buildings. Trading losses Companies incurring trading losses have three main options to consider in utilising these losses: they can be set against total profits of the same accounting period they can be carried back against total profits of the previous 12 months they can be carried forward against future trade profits only (if incurred before 1st April 2017) and against total profits (if incurred after 1st April 2017) However, there is a restriction on the use of carry forward losses where a company’s or group’s profits are above £5 million. Any profits over £5 million arising on or after 1st April 2017 cannot be reduced by more than 50% by brought forward losses. Losses that have arisen at any time are subject to these restrictions. A temporary extension to the rules for trade loss relief was announced by the Government in its Budget on 3rd March 2021. The temporary extension allows companies with accounting periods ending between 1st April 2020 and 31st March 2022 to carry back trading losses to an extended period of the previous three years, offsetting against profits in the most recent year first. Extracting profits Directors/shareholders of family companies may wish to consider extracting profits in the form of dividends rather than as increased salaries or bonus payments. This can lead to substantial savings in national insurance contributions (NICs). It is important to note that company profits extracted as a dividend remain chargeable to corporation tax at a rate of 19%. Dividends From the company’s point of view, timing of payment is not critical, but from the individual shareholder’s perspective, timing can be an important issue. A dividend payment in excess of the Dividend Allowance, which is delayed until after the tax year ending on 5th April, may give the shareholder an extra year to pay any further tax due. The Dividend Allowance is £2,000 from 2018/19 (£5,000 2017/18). The deferral of tax liabilities on the shareholder will be dependent on a number of factors. Please contact us for detailed advice. Share transfers There are many good reasons why a married couple or civil partners should consider equalising their income, where this is possible and practical. For married couples and civil partners, it is sensible to consider sharing income by gifting some or all of any income producing assets, such as shares you own, to your spouse to save tax. Before doing this, there are a number of legal and practical considerations which need to be taken into account. You should also be aware that for this to work, several conditions need to be satisfied. Generally, your gift must be to your spouse or civil partner from whom you have not separated and be an unconditional gift. Professional advice should always be taken so your individual circumstances can be reviewed. Loans to directors and shareholders If a ‘close’ company (broadly, one controlled by its directors or by five or fewer shareholders) makes a loan to a shareholder, this can give rise to a tax liability for the company. If the loan is not settled within nine months of the end of the accounting period, the company is required to make a payment, known as a ‘S455’ charge. This ‘S455’ charge