Before your company year end arrives there are some important steps to take that can help to minimise your tax bill. If your company has had a successful year and made a profit you will become liable to pay Corporation Tax. However, there may be opportunities before your year end to reduce this. Here are 7 things you should know or do before the end of the tax year.
Know When To File Your Accounts
When you set up a limited company you are automatically assigned a date for the company’s end of financial year. This will be the last day in the month that you incorporated your company and not the end of the calendar year. The accounting period for your tax return can be different to your financial year end, but in most cases it’s the same. This is what is due and when:
- First year accounts: 21 months after you registered with Companies House.
- Annual accounts: 9 months after your financial year end.
- Company tax return: 12 months after your accounting period ends.
- Pay Corporation Tax: 9 months and 1 day after your accounting period for Corporation Tax ends.
Talk To An Accountant
Though it’s vital as a business owner to be fully on top of what is happening with your business’s finances, you should seriously consider outsourcing your taxes a specialist account, especially as your business grows. If you get your statutory accounts and year end tax return produced by an accountant you’re likely to end up paying less tax as they know all the latest financial rules and regulations and can identify the expenses you might not have considered.
It’s a Good Time to Review Company Expenditure
The higher your spending, the lower your profit, and the less tax you have to pay. If you are planning to make any purchases then just before your year end is a great time to do it as it will maximise your company’s outgoings. Typical outgoings that can help in this area include:
Home office allowance. If you work from home even part time – and it’s likely to have been more during 2020 – you can claim for using your home as an office.
Staff events. A company can pay for annual staff events up to £150 (including VAT) per guest which is allowable for Corporation Tax relief.
Stocking up on office supplies. It’s a great time to stock up on general office supplies including paper, stationery and printer cartridges.
Purchase larger assets for company use. For example, office furniture, IT equipment and software.
Mobile phones. If you or your employees use a mobile phone for business purposes but don’t have the contract in your business’s name, consider transferring it.
Small expenses. Whilst it might seem like a hassle to record the mileage for short business trips or dig out receipts for minor purchases, remember that over the course of a year it all adds up.
The First Year Allowance for Electric Charging Points has Been Extended
The government provides a 100% first year allowance for expenditure incurred on electric vehicle charge point equipment. It was due to end in 2019 but has been extended until 2023. If you are investing in company cars, consider going electric.
Review Salaries and Bonuses
End of year is a good time to pay yourself or your partner for legitimate work that has been done throughout the previous 12 months. For example, if your spouse helps with company admin you may be able to pay them a salary or bonus that will reduce your Corporation Tax liability. Ensure that the director’s salary is set at an optimum level to maximise tax and National Insurance Contributions efficiencies. This can be tricky to figure out – another reason why using a specialist accountant is a good idea.
Check Your Insurance Cover
You should already have Professional Indemnity insurance to meet contractual obligations, but it’s worth considering further business cover to protect against unforeseen problems. Some new tax products that are compatible with small businesses offer tax relief: ask your accountant for more information.
Invest in a Company Pension
A company pension is an easy way to reduce your tax liability. Employer contributions to pensions are allowable for tax purposes, so are taken from your company’s pre-tax earnings. This means they can help reduce your tax bill. End of year is a good time to top up your pension but make sure any payments are made and received by the pension company before your year end.
Getting all your ducks in a row financially before the end of the tax year will help to reduce your tax bill. Check that you have totted up all your expenses, review salaries, bonuses and pension contributions and make sure you have the right level of insurance cover. Crucially, if you’re not sure about anything, ask an accountant as they have the expertise to know exactly how to help you.