By Dan Cozens, accounting manager, Armstrong Watson
As we look towards a new tax year, there are some considerations you should make when it comes to your tax planning over the next 12 months.
What are you aiming to achieve?
Lower profits may mean a lower income tax bill but that isn’t necessarily the best result for the business.
There are some reasons you may want to show a higher profit and pay more tax:
- Your mortgage – the performance of your business and profit share taken from it will affect your mortgage options.
- Funding – lenders will consider the profits of the business when looking at repayment/affordability.
Considerations to mitigate your income tax liability
Capital expenditure
- Assets must be delivered and in use to claim tax allowances. On most plant and machinery, fixtures and fittings, 100 per cent relief is given up to a limit of £1 million under the Annual Investment Allowance.
Remember that disposals made before or after the end of your accounting period may affect the taxable profit.
- If you are looking to purchase a new car, be aware that cars do not always get 100 per cent allowances:
- New cars – CO2 emissions of 0g/km – 100 per cent first year allowances
- Second hand electric cars – 18 per cent of the car’s value
- CO2 emissions are 50g/km or less – 18 per cent of the car’s value
- CO2 emissions are over 50g/km – six per cent of the car’s value
Pension contributions
If you’re a higher rate tax payer you can make pension contributions to extend your Basic Rate band – to impact the 2023-24 tax return, payments must be made in the your pension by 5th April, 2024.
Further considerations
Basis period reform
Unincorporated businesses could face higher tax bills in 2025 as a result of changes being introduced by HMRC and as we enter the new tax year it is important to start to factor this into your tax planning.
These changes — known as basis period reform — mean that from 2024 a sole trader or partner in a partnership will be taxed on the actual profits in a tax year, rather than the profits from a set of accounts ending in the tax year.
In the transitional year to 5th April, 2024, a person will be taxed on more than 12 months’ profit but will be able to deduct their overlap profit.
Any additional profits arising from the transitional adjustment in 2024 can be spread over five years.
Expenditure that will not affect profits
- Spending on matters that don’t happen until after the year-end or on products that are in stock at the year-end won’t reduce the current year profits.
- Land – the purchase of land does not attract any income tax deductions.
If you would like advice and support when it comes to your year-end planning, please get in touch by emailing dan.cozens@armstrongwatson.co.uk or calling 07772812274.
