Preparing for year-end: Tax planning tips for businesses

As we head into the latter part of the year for some businesses, so does the end of their financial year. It’s crucial to review tax planning strategies to ensure you’re optimising your financial position. Taking a proactive approach throughout the financial cycle can help reduce tax liabilities and set your business up for a strong start in the new year. Here, the expert team at JW Hinks shares key tax planning tips that businesses should consider as they approach their financial year-end.

1. Review your financial position

Before making any tax decisions, a thorough review of your financial records is essential. Make sure your books are up to date and that all income, expenses, and transactions are accurately recorded. By having a clear overview, you can better estimate your tax liability and identify opportunities for savings or areas that need attention.

2. Maximise available deductions

Ensuring you’re taking full advantage of allowable deductions can significantly lower your taxable income. Some key areas to review include:

• Business expenses: Make sure all eligible expenses, from office supplies to travel, are properly accounted for.
• Capital investments: If your business has plans for purchasing new equipment or assets, consider doing so before the end of the financial year. The Annual investment allowance (AIA) allows businesses to claim up to 100% of qualifying capital expenditure against their taxable profits.
• Employee benefits: Are you making use of tax-efficient benefits like company pensions, cycle-to-work schemes, or health insurance? These can often be deducted from profits.

3. Make the most of tax reliefs

Several tax relief schemes are available for businesses, and making the most of them can lead to substantial savings. Some examples include:

• Research and development (R&D) tax credits: If your company is involved in innovative projects, R&D tax credits can provide relief on eligible activities. Many businesses miss out on this valuable benefit, so it’s worth exploring if you qualify.
• Patent box relief: If your company owns intellectual property such as patents, the Patent Box scheme allows profits from these to be taxed at a reduced rate, helping to lower your overall tax bill. 

4. Defer income and accelerate expenditures

One simple yet effective tax strategy is to defer income to the next financial year if you anticipate your business will have a lower tax rate in the coming year. Conversely, bringing forward deductible expenses – such as paying bills or making charitable donations before the end of the year – can reduce your current tax liability.

5. Utilise losses

If your business has experienced losses during the year, ensure that these are effectively utilised. Losses can often be carried forward to offset future profits or carried back to claim a refund on taxes paid in previous years. Properly managing your losses can provide immediate and future tax relief.

6. Pension contributions

Employer contributions to pension schemes are not only a great way to support your employees’ retirement but also offer tax benefits for your business. Contributions are typically deductible from your profits, reducing your tax bill. Consider making additional contributions before the year-end to maximise these advantages.

7. Consider dividend payments

If your company is structured as a limited company, paying dividends to shareholders can be a tax-efficient way to distribute profits. Dividends are generally taxed at a lower rate than salary payments, making them a popular option for business owners. However, it’s important to ensure you stay within the appropriate dividend tax thresholds.

8. Review VAT position

The year-end is a great time to review your VAT position. Make sure that all VAT returns are filed and that you’ve paid any outstanding VAT liabilities to avoid penalties. Additionally, businesses may want to review whether they’re on the most appropriate VAT scheme, such as cash accounting or the flat rate scheme, which could help improve cash flow and reduce administrative burdens.

9. Plan for employee bonuses

If you plan on awarding bonuses to employees, paying them before the year-end can allow your business to benefit from tax deductions in the current financial year. This not only boosts employee morale but also helps reduce your company’s taxable income.

10. Seek professional advice

The end of the financial year can be a complex time for tax planning, and it’s essential to seek professional guidance. The JW Hinks team is here to provide expert advice tailored to your specific circumstances, ensuring that your business takes full advantage of all available tax reliefs and planning opportunities.

Effective year-end tax planning can make a significant difference in your business’s financial health. By reviewing your finances, maximising deductions, and considering key tax strategies, you can minimise your tax liabilities and set your business on a strong course for the year ahead. Don’t leave crucial planning until the last minute, contact JW Hinks today to discuss how we can assist you with expert tax advice and financial planning.