Mastering Tax Planning: Your Guide to Financial Success in 2023

Mastering Tax Planning: Your Guide to Financial Success in 2023

Presenting our October edition of Tax E-News. We have tried our best to bring you the most valuable tax news this month. Should you have any topics you’d like to delve into further, don’t hesitate to get in touch with us.

Importance of having up-to-date profit projections for taxation purposes

To assist in accurately forecasting your taxable profits and assessing your tax obligations, we require current profit data and future projections. Employing a computerised accounting system, ideally utilising cloud-based solutions, offers the advantage of enabling us to analyse your most recent financial position. This, in turn, allows for the creation of more dependable profit forecasts, aiding in the estimation of your tax liabilities.

a. Unincorporated Businesses

For unincorporated businesses, the accurate profit projections is vital. This is emphasised by the alterations in taxation policies for sole proprietors and partnerships slated for implementation in 2024/25. Furthermore, the intricate transitional regulations in effect during 2023/24 may lead to higher tax bills for businesses with fiscal year-ends falling outside 31 March or 5 April. Armed with accurate profit projections, we can assess whether adjusting your business’s fiscal year-end could be advantageous and determine the optimal timing for such a transition. Book a free consultation with us for better tax planning

b. Limited Companies

As of 1 April 2023, the applicable rate of corporation tax hinges on a company’s profit levels and the number of “associated companies.” The term “associated companies” encompasses those under shared control, which might encompass companies overseen by close relatives under specific circumstances.

In the case where a company has no associated companies, the 19% corporation tax rate remains in effect for profits up to £50,000. For profits surpassing £250,000 annually, the corporation tax rate stands at 25%. These £50,000 and £250,000 thresholds are prorated in the presence of “associated companies.” In the intermediate range, there exists a transitional relief mechanism, facilitating the shift between the 19% and 25% tax brackets.

Within the £50,000 to £250,000 range, the marginal tax rate is 26.5%, presenting ample opportunities for tax planning. For instance, investing in new equipment or making supplementary pension contributions on behalf of directors could potentially lead to a 26.5% reduction in corporation tax. The timing of expenditures is crucial in this context, necessitating that expenses be incurred before year-end. We recommend commencing a review at least two months prior to the company’s year-end, ensuring that reliable profit forecasts are on hand to allow for pre-year-end strategising. So book a free meeting with our experts at Naseems Accountants today for tax planning

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When can companies be considered as ‘associated’

Associated companies, in the context of corporation tax are entities subject to shared control. This typically arises when one of the companies exercises authority over the other, or when both entities fall under the dominion of the same individual or group. When establishing control, the influence and authority wielded by an individual’s close associates, primarily immediate family members, may be considered.

However, this is applicable only in cases where there exists a notable commercial interconnection between the two companies. This interconnection may manifest in financial, economic, or organisational aspects and will necessitate a case-by-case evaluation. For instance, a scenario could involve siblings each managing their respective limited companies, with significant loans or substantial trade transactions between them, resulting in one entity relying on the other.

It’s important to note that this matter is not straightforward, and our team of expert advisors at Naseems Accountants is available to offer guidance on its potential implications for your company.

Companies with profits in excess of £1.5 million to pay corporation tax quarterly

In the scope of taxation, an established but vital measure pertains to companies yielding profits exceeding £1.5 million annually. Such entities are now mandated to project and pay their corporation tax on a quarterly basis within the fiscal year, as opposed to the prior practice of a 9-month post-accounting period timeline. Effective from 1 April 2023, a noteworthy modification involves the proportional adjustment of the £1.5 million threshold based on the number of “associated companies” during the accounting period, as explained above.

Consequently, should a company have two associated entities, and if either surpasses £500,000 in profits, the obligation for quarterly corporate tax instalments comes into effect. For a company with a year-end falling on 31 March 2024, adherence to the ensuing schedule for settling its estimated corporation tax liability is paramount:

  • 25% of the estimated payable corporation tax liability by 14 October 2023.
  • 50% of the estimated corporation tax liability by 14 January 2024.
  • 75% of the estimated corporation tax liability by 14 April 2024.
  • 100% of the corporation tax liability by 14 July 2024.

As emphasised earlier, precise profit projections form the bedrock for these quarterly payments.

It is essential to acknowledge that this represents a considerable acceleration of tax payments, deviating from the traditional 9-month payment cycle. Consequently, a one-year “grace period” is provided for the initial year the threshold is exceeded. To mitigate potential cash flow challenges, you might also contemplate reducing the number of associated companies.

For personalised insights and expert guidance on managing these tax obligations, we encourage you to book a free consultation with our team of experts at Naseems Accountants.

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Mark Your Calendars: Autumn Statement Scheduled for November 22nd

The Treasury has officially confirmed that the Office of Budget Responsibility (OBR) is set to compile a comprehensive report evaluating the current state of the UK economy. This report is slated for release in time for Chancellor Jeremy Hunt’s presentation of the Autumn Statement on Wednesday, 22 November.

In the prior year, the Chancellor disclosed a series of substantial amendments, effectively reversing numerous proposals outlined in the Kwarteng/Truss mini Budget from the preceding September. As we approach this year’s announcement, the expectation is for a relatively predictable unveiling. Nevertheless, early indications, albeit speculative, suggest that substantial tax reductions are unlikely. Given the likelihood of an upcoming General Election within the next 13 months, there may be a few incentives in the form of tax reliefs. Furthermore, Prime Minister’s recent address on 20 September regarding strides toward achieving Net Zero implies that we can anticipate several announcements pertaining to green energy initiatives impacting both individuals and businesses.

Another conjecture circulating is the potential elimination of inheritance tax. This prospective move could serve as an encouragement for steadfast supporters of the traditional Conservative Party to maintain their allegiance.

For expert insights and personalised advice on navigating these potential changes, book a free meeting with our team of specialists at Naseems Accountants. We are here to guide you through the implications and strategies for your financial planning.

Rumours:  Possible Abolition of Inheritance Tax

Leading up to any Budget or Autumn Statement, there is a consistent flow of leaks and speculations. Typically, preceding a General Election, there tends to be tax reliefs as an effort to secure the re-election of the current political party. A prevalent rumor in recent press discussions centers around the potential elimination of Inheritance Tax (IHT). This proposal would undoubtedly garner significant support among undecided Conservative voters, offering them the prospect of preserving greater wealth within their families.

The circulation of this rumor might lead families to postpone their estate planning activities in anticipation of an official announcement. It’s crucial to note that effective tax planning should always be grounded in the current tax regulations, rather than reliant on anticipations of future amendments. Additionally, there is an added element of uncertainty regarding potential tax changes in the event of a political party change in government. The Labour Party, historically, has shown a propensity for elevating capital taxes and fortifying regulations pertaining to the utilisation of trusts in tax planning strategies.

The Office of Tax Simplification, which has since been disbanded, issued two reports in recent years addressing the streamlining of Inheritance Tax (IHT) and its intricate interactions with Capital Gains Tax (CGT). The Chancellor may choose to adopt some of the recommendations put forth in those reports, or potentially consider the complete abolition of IHT and an expansion of CGT to encompass specific transfers upon death.

Feel free to reach out to us for a comprehensive discussion on your future strategies regarding the transfer of your business and family assets. Rest assured, we’ll also keep you updated on any changes in tax legislation that could impact these plans.

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Is a National Insurance Refund Applicable for Your Car Allowances

Recent rulings by Tribunals, favoring employing companies over HMRC, have prompted many organisations in similar situations to file precautionary claims for the reimbursement of National Insurance Contributions (NIC). These claims pertain to car allowances disbursed to employees who utilise their own vehicles for business-related travel.

Usually, employers follow a practice of solely compensating for fuel expenses linked to business trips, for example at 15p per mile, in which case it differs from the maximum HMRC Approved Mileage Allowance Payments (AMAP) rates, which currently stand at 45p/25p per mile, and are exempt from tax and NIC. In cases where the employer’s reimbursement falls short of the 45p allowance, the employee has the option to file a claim for the difference, which is then deducted from their employment income.

Recent rulings by the Upper Tribunal, which HMRC has affirmed they will not contest, establish that the sums disbursed by the employer for business-related mileage are exempt from National Insurance Contributions (NIC). Consequently, employers are advised to explore the option of seeking reimbursement from HMRC.

Please contact our expert payroll accountants at Naseems Accountants if you think you may be entitled to make such a repayment claim

Diary of Main Tax Events October / November 2023

Date What’s Due
1 October Corporation tax for year to 31/12/22 unless paid by quarterly instalments
5 October Deadline for notifying HMRC of chargeability for 2022/23 if not within Self-Assessment and receive income or gains on which tax is due. i.e. to register for Self-Assessment.
19 October PAYE & NIC deductions, and CIS return and tax, for month to 5/10/23 (due 22 October if you pay electronically)
1 November Corporation tax for year to 31/01/2023, unless quarterly instalments apply
19 November PAYE & NIC deductions, and CIS return and tax, for month to 5/11/23 (due 22/11 if you pay electronically)
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