Corporation tax year end planning Paul O'Connell
Most readers would acknowledge that corporation tax year-end planning is not what it once was. This is due mainly to the abolition of the different rates of corporation tax that previously applied to ‘large' and ‘small' company taxable profits. Corporation tax was a flat rate of 20% for most company profits for the financial year beginning on 1 April 2016. This rate falls to 19% for the year beginning on 1 April 2017 and is currently forecast to fall to 17% for the year beginning 1 April 2020.
Although the corporation tax rate will fall by only one percentage point from 1 April 2017, opportunities still remain to reduce and defer corporation tax liabilities, particularly in the context of recent changes to the legislation, as discussed further below. With the new tax year fast approaching, here are ten topical year-end corporation tax planning tips.
1. Consider the timing of capital expenditure to maximise the relief available from capital allowances.
2. Consider making pension contributions, if possible within the limits for relief. If you are making large contributions, take care that payments are structured in such a way to avoid relief being deferred under the pension spreading rules.
3. Maximise your tax losses - remember the set-off rules for losses and that there have been rule changes
- The rules on using new losses arising from 1 April 2017 have been relaxed
- The amount of annual profit that can be relieved by carried forward losses (of whatever description) will be limited to 50% from 1 April 2017, subject to an allowance of £5m for each group the ‘loss restriction'.
4. Consider deferring income or profits, by pushing sales forward to next year, or changing your year end.
5. Careful planning on accruals and provisions can ensure that tax deductions are maximised and liabilities are minimised.
6. Ensure you are claiming R&D tax credits where you are entitled to them. For an SME, for every £1 of qualifying R&D expenditure, an additional £1.30 is allowed in its tax computation as a ‘super deduction'. This means that total relief equal to 230% of the actual R&D expenditure is available.
7. Consider whether you are able to claim one of the creative industry reliefs
- Film tax relief.
- Animation tax relief.
- High-end television tax relief.
- Children's television tax relief.
- Video games tax relief.
- Theatre tax relief.
- Orchestra tax relief.
8. Clear overdrawn loan accounts within nine months of the end of your accounting period.
9. Consider whether roll-over relief can be used to defer corporation tax on gains?
10. Review the claims and elections made in previous years to ensure that they remain effective.
In the context of April year-ends, it is worth reviewing the claims made for 30 April 2015 before 30 April 2017 in other words, before the time limit expires to ensure that the most beneficial claims and elections have been made in light of the profits or losses arising in subsequent years.