Tax planning – it’s time to check you have maximised your allowances and reliefs

April 5 marks the end of the current tax year, so now is a good time to double check that you have made the most of important allowances and reliefs that are available to you.

Corporation Tax – the tax paid on the profits a company makes – will be among a business’ largest expenses.

There are several ways small business owners can cut the cost of Corporation Tax, the first being the use of readily available tax reliefs created in recent years by the Government.

One relief that is often underutilised is R&D tax credits. If you run a small business this will allow an extra 130 per cent of identified costs, as well as the normal 100 per cent deduction, to be written off against taxable profits.

This equates to around 33p in every pound spent on a project that has led to the creation of new products, processes or services or where you have modified an existing product, process or service. Claims can even be made against unsuccessful innovations that resulted in a loss.

Useful relief can also come from Capital Allowances. You can claim Capital Allowances when your business purchases assets that you keep to use in your business, for example, vehicles, equipment or machinery.

You can deduct some or all of the value of the item from your profits before you pay tax, which can help to reduce your Corporation Tax liabilities.

Between January 2019 and December 2020, the Annual Investment Allowance (AIA) has been temporarily increased to £1 million.

It is therefore advisable for businesses to capitalise on this special allowance by bringing forward planned purchases of plant and machinery.

The AIA is a form of Capital Allowance, which can provide thousands of pounds of Corporation Tax savings to businesses.

Capital purchases include tools, construction equipment, factory fixtures, office equipment, lorries and vans although cars do not qualify.

Other points to consider are deferring business income and changing your business year-end date.

Deferring (and accelerating) income is often an important component of tax planning provided the accounting rules will accommodate this legitimately. Businesses can effectively increase and decrease the amount of Corporation Tax they are liable for by delaying, postponing or accelerating the receipt of revenue or expenses until a future tax year.

Finally, you can also change your company’s year-end to make your company’s financial year run for more or less than 12 months, for which there are particular company accounting rules to follow.

The tax advantages of this are minimal, but it may be worth considering this if your company has experienced a loss, as it might be possible to carry this loss into a different year so that it can be offset against a profit.