Pre Year-end planning presents an opportunity for businesses to assess their current financial standing, build a strategy for the future and utilise any tax opportunities.
Being proactive can help a business understand its financial position towards the end of the tax year and crucially influence plans for a positive outlook.
Corporate Tax
Associated Companies
From 1st April 2023, the rules relating to associated companies replaced the previous group condition. The effect of this change is that companies will now have to include all entities that are commonly owned and controlled rather than just those within your corporate group.
As a result, affected companies will have to pay a higher rate of tax on their profits and this tax may have to be paid more regularly and far sooner.
Under the new Associated Company rules, a company is associated with another company if at any time within the preceding 12 months one company has control of the other, or both are under the control of the same company or person/s.
Until 31 March 2023, the corporation tax rate in the UK was 19%, from 1 April 2023, for the accounting periods beginning on or after 1 April 2023, the applicable tax rate depends on the level of profits:
- Profit up to £50,000 (the lower limit) – 19% (known as the small profits rate)
- Profits between £50,000 and £250,000 – the company pays a blended rate between 19% and 25%
- Profit greater than £250,000 (the upper limit) – 25% (known as the main rate)
Quarterly Instalments - Understanding Large And Very Large
The change mentioned above regarding associates versus group companies does not only affect the availability of the small profits rate but also can impact your quarterly instalments. The thresholds described below are now all divided by the number of associated companies.
Large – Profits between £1.5 million and £20 million
Very large - If a company has taxable profits in an accounting period which exceed £20 million, it will be considered a ‘very large’ company and separate rules apply.
A large company with accounting periods of 12 months, will normally pay their Corporation Tax in 4 quarterly instalments, 2 of which are due before the end of your accounting period.
These will be four equal instalments:
- 6 months and 13 days after the first day of the accounting period
- 3 months after the first instalment
- 3 months after the second instalment (14 days after the last day of the accounting period)
- 3 months and 14 days after the last day of the accounting period
Where you are a Very Large company, the instalments are due 4 months earlier than the normal QIP dates. This means that the final instalment is due before the end of the accounting period.
Group Payment Arrangements
A Corporation Tax Group Payment Arrangement (GPA) is a special arrangement that allows groups of companies to make joint payments of Corporation Tax. Companies that can enter a Group Payment Arrangement are a parent company and its 51% subsidiaries.
The benefits of this include reducing administration and costs associated with making a large number of individual payments, and reduced interest charges (as some or all members of the group will normally have to pay Corporation Tax in instalments).
Groups of companies can minimise their exposure to interest on overdue tax by surrendering overpayments within the group.
Where interest rates on overdue corporation tax are rising, making a single payment for a group and then being able to allocate this most favourably at a later date offers a potentially significant reduction in the potential interest exposure.
Only certain groups will qualify for Group Payment Arrangements, and to make one, you need to complete a legal agreement.
Interest on Late Payments
Where tax is not paid on time then the rate of interest that will apply from 22 August 2023 is 7.75%.
For late paid quarterly instalments, the rate is reduced to 6.25% for payments due after 14 August 2023.
These HMRC interest rates are linked to the Bank of England base rate, so an increase triggers an increase in rates for late payments and repayments of tax.
Where companies paying QIPs will often have to estimate the final tax for the accounting period, the 6.25% late payments interest can trigger a potentially sizeable late payment charge.
Capital Allowances
When considering the acquisition of capital assets, you must be conscious of the timing of buying and selling as it can trigger tax relief. Typically, capital allowances are determined based on the acquisition date. Consequently, acquiring assets towards the end of a period results in tax relief being triggered for that period, thereby reducing upcoming tax bills much sooner compared to acquiring assets at the beginning of the period.
Claiming capital allowances can help your business pay less tax when buying assets. You can claim capital allowances on most types of capital expenditure. This would include plant & machinery, fixtures & fittings and vehicles.
For example, a company with a 31 December accounting reference date that acquired an asset on 31 December 2023 would feel the benefit of the tax relief on 1 October 2024, when the tax for that accounting period falls due. If the asset was acquired on 1 January 2024 then the benefit of the relief would not fall due until 1 October 2025 as it falls into the subsequent accounting period.
The same is true concerning disposals of assets but this is often affected by both the disposal value and the allowances previously claimed which can make the calculations slightly more complex.
Research and Development
The Advanced Notification Requirement
This is a new procedure requiring R&D tax credit claimants to inform HMRC of an intention to claim R&D relief before they submit a claim. Failing to provide an advanced notification, means HMRC will write to you to say they have removed your claim for R&D tax relief from your company tax return.
- The advanced notification requirement applies for claims made to accounting periods which commence on or after 1 April 2023.
- There is a key exemption from this requirement where your last claim was made less than 3 years before the last date of the claim notification period. This means that companies claiming on an ongoing basis will not need to do this. There is also an Additional Information Form that must be completed for all R&D submissions made on or after 8 August 2023.
We are seeing many people confusing the two requirements, and failing to complete either of these will result in the R&D claims being removed from the returns.
Research & Development – Rate Changes
There have been several reforms with the tax relief rates, all from 1 April 2023:
- The government has decreased the SME additional deduction rate from 130% to 86%
- Decreased the SME payable credit rate from 14.5% to 10%
- For Knowledge Intensive Companies that are SMEs, the payable credit rate remains 14.5% Effectively, this lowers the rates from those in the existing SME scheme, with expenditure incurred from 1 April 2023 creating tax savings of between 18.6% and 21.5%, depending on whether an SME is loss- or profit-making.
- The Research & Development Expenditure Credit (RDEC) rate has increased from 13% to 20%.
Bonus Accruals and Directors Loan Accounts
Although not specifically related to corporate tax planning, more basic tax planning, it is still worth referencing about bonus accruals and DLAs.
A bonus accrual is used by companies to estimate and set aside funds for employee bonuses that will be paid out in the future. The accrual method ensures that the expense related to these bonuses is recognised in the same accounting period when the related revenue or performance is achieved.
For employees, so long as the obligation to pay the bonus existed at the end of the accounting period and the bonus is paid within 9 months of the end of that period, then the cost will be deductible in the period in which the bonus is accrued rather than paid.
For Directors, this is further complicated by rules pertaining to the triggering of the PAYE charges in relation to bonuses. Unlike employees who are taxed when bonuses are received, Directors are taxed on these at the point they become entitled to the bonus, not when it is actually paid.
Payrolling Benefits
Currently, the payrolling of Benefits In Kind (BIK) is optional with a large number of employers choosing to submit a P11D. From 6 April 2026, payrolling benefits will be mandatory.
To read more on BIK, click here.
Salary or Dividends
Salaries are the fixed amounts paid to employees on a regular basis, which are subject to income tax and NICs. Dividends, on the other hand, are payments made to shareholders out of the company's profits after tax. Dividends are subject to income tax, but not NICs.
As we have a rise in corporate tax rates, if you are paying corporation tax at 25%, you have to see what is more beneficial and it often depends on individual circumstances and the company's position.
Areas to consider, which can often complicate the decision further include:
- R&D relief on the salary, you get even more relief. Dividends would not benefit from R&D relief, so a shareholder/Director carrying on significant levels of R&D would have a lower marginal tax rate from having their earnings paid under PAYE; despite the timing disadvantage with the payment of tax.
- Where there are minority shareholders, and dividends must be paid equally on any class of shares, it may be beneficial to take a greater proportion of earnings under PAYE as this can be directed as required rather than forced to mirror shareholdings.
Employee Related Securities (ERS) and Enterprise Management Incentives (EMI)
If you are an employer operating ERS schemes, you must submit an ERS return every year for all schemes, including one-off awards or gifts of shares.
You must submit your return by 6 July following the end of the tax year, or you may have to pay a penalty.
You need to submit an ERS return even if:
- There have been no transactions
- The scheme has been registered in error or there’s a duplicate scheme
- You did not get a reminder from HMRC
EMI (Enterprise Management Incentive) schemes have historically required a notification of grant to be completed within 92 days of the date of grant and also an annual EMI return is required by 6 July.
In a welcome change, EMI grants after 6 April 2024, will have the same reporting date as the annual return. We are yet to see whether this will be a combined grant notification and annual return but both will have a 6 July following the end of the tax year deadline.
Annual Tax on Enveloped Dwellings (ATED)
For ATED (Annual Tax on Enveloped Dwellings), the non-corporate returns, need to be in by 30 April. You must be careful as you may not have to pay the charge, but you still have to submit the relief.
Pre-year-end planning incorporating some or all of the above, places a business in a positive position at the end of the tax year, enabling employers to mitigate any tax liabilities and have an understanding of the financial position.
At Pierce, we have a team of expert accountants, tax advisors and payroll advisors that can help you navigate some of these complex regulations and legislations.