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Year-end tax tips for businesses 2019/20

Oscar Wingham

Posted by
Oscar Wingham
20.01.2020

The period leading up to the end of the tax year is always one of the best times to consider the tax reliefs and allowances available to you.

In this article we discuss some of the areas in which companies and businesses with 31 March year-ends can consider.

You can also see our year-end tax infographic summary here, which covers these action points, as well as those for individuals.


Corporation tax

All companies making profits in the UK pay the main rate of corporation tax at 19% in 2019/20.

On one hand, a promise to reduce the main rate of corporation tax from 19% to 17% from 1 April 2020 has been legislated for.

On the other hand, the Government has pledged to shelve this planned increase to keep the main rate of corporation tax at 19% for 2020/21.

The Government, however, faces a race against time to get that written into statute before 6 April 2020.

Companies need to keep accounting records and prepare company tax returns.

Payment is due nine months and one day after the company’s accounting period, while company tax returns are usually due 12 months after the company’s accounting period.

Key considerations

A very important tax-reduction strategy is to bring qualifying capital expenditure forward to use the 100% annual investment allowance.

The allowance for all qualifying expenditure is £1 million until 31 December 2020, although transitional rules may apply for chargeable periods spanning these dates.

In such cases, the timing of the purchase will be critical in ensuring the maximum allowance can be claimed.

Taxable profits are typically reduced by employers making pension contributions, while self-invested personal pensions are popular with many company owner-directors.

This can be a very tax-efficient strategy for both the company and the individual.

Business deductions

When you’re working out your business’s taxable profit, you can deduct any costs that were incurred wholly and exclusively for the purposes of the trade.

These could include the cost of travel, staff salaries, pension contributions, bills for your business premises, advertising and marketing, and training.

Directors’ bonuses can be claimed as a deductible cost, as long as they are paid within nine months of the company year-end and the entitlement to the bonus is established before the accounting date.

You may also be able to claim capital allowances for things you buy to keep in your business, such as equipment, machinery and business vehicles.

Key considerations

  • If you are due a director’s bonus, have you claimed it as a deductible cost?
  • Have you paid any employer pension contributions? These must be paid before the year-end to get tax relief in the accounting period.
  • Are you paying a member of your family a salary? Salaries can be paid to family members as long as they are justifiable and at commercial rates.
  • Have you considered tax-efficient ways of extracting profits, such as dividends, pension contributions and benefits-in-kind?

VAT

In 2019, around 2.7 million businesses in the UK were registered for VAT, which is usually charged at 20% on the sale of goods and services.

Most VAT-registered firms need to keep digital records of these sales, and file monthly or quarterly VAT returns using digital software under the Making Tax Digital (MTD) regime.

Unless HMRC has agreed your business is exempt from MTD for VAT, non-compliance penalties will kick in for accounting periods starting in April 2020.

Additionally from April 2020, HMRC will be moving to a points-based penalties system to encourage good taxpayer behaviour.

Your business must register for VAT when your taxable turnover has gone over £85,000 in the previous 12 months or you expect turnover to go over this threshold in the next 30 days.

Your business’s VAT taxable turnover is the total of everything sold that is not exempt.

You can register voluntarily, while you can also voluntarily deregister for VAT if your taxable turnover is less than £83,000.

Schemes exist to simplify accounting for VAT, including the cash accounting scheme, annual accounting scheme, and the flat-rate scheme.

Key considerations

  • Could your business use one of the simplified accounting schemes?
  • Does your business need to be VAT-registered?
  • Are you entitled to claim VAT bad debt relief?
  • Are you accounting for VAT correctly on the fuel used for private motoring? Should you be accounting for the appropriate scale charge?

Contact us

If you would like to discuss our tax advisory services or any action point in more detail, please do get in touch with our tax team.

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This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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