It’s a brand new year, so it’s only natural to look under the bonnet of your business to try and start 2023 in the best way possible. Part of that is business tax planning.
You need to be quick – things are changing in the 2023 tax year from early April, most notably an increase in corporation tax from 19% to 25% for some limited companies. All the while, a recession looms, and energy costs remain high.
So, what can you do to create a better tax plan for your business?
Businesses can save money by claiming capital allowances, which are tax reliefs that allow you to deduct the value of ‘plant and machinery’ from your tax bill.
Plant and machinery is a broad term that includes business equipment, integral building fittings and business vehicles.
There are multiple types of capital allowances your business could choose from, each with their own purposes.
First, the annual investment allowance allows you to claim up to £1 million on “most plant and machinery”.
Then there are 100% first-year allowances, with which you can claim for new and unused plant and machinery – mostly related to green or CO2 efficient energy – in the year it was purchased.
You may also benefit from the super-deduction and the special first-year allowance, both due to end on 1 April 2023 as they were introduced to spur the economy post-Covid.
The super-deduction allows companies to reduce taxable profits by 130% of qualifying plant and machinery, while the special rate allowance is worth 50%.
Reducing capital gains tax
From April 2023, the annual exemption amount for capital gains tax will reduce from £12,300 to £6,000, so knowing how to save on capital gains tax – the tax on the disposal of assets where there is profit from doing so – is important for an ambitious business.
The timing of certain payments and receipts of income is crucial for tax purposes; by moving the payment date or receipts by a few days either side of your year-end, you may be able to reduce your tax bills and defer payment until the next tax year.
You may also be able to claim rollover relief if your company buys new chargeable business assets within one year before or three years after you sell a business asset – effectively postponing any tax liability until you sell the new asset.
You might also be able to claim relief on assets that have become worthless; you can claim a loss without having to sell the asset , and offset it against the chargeable gain.
R&D tax relief
With R&D tax relief, companies can claim for a portion of their R&D costs to reduce their tax liability. There are two schemes, both of which are changing from April.
First is the SME R&D tax relief scheme, which is open to companies with fewer than 500 staff, a turnover below €100 million or a balance sheet total below €86 million.
As of the time of writing, companies can deduct an enhancement rate of 130% of their qualifying costs from their yearly profit on top of the regular 100% deduction they are entitled to; the repayable tax credit rate is 14.5%.
However, the enhancement rate and repayable tax credit will be reduced to 86% and 10% respectively in 2023/24.
Larger companies can claim the R&D expenditure credit, which is set at 13% of qualifying R&D expenditure. However, this will rise to 20% from April, making the scheme more generous.
There are plenty of other ways to potentially reduce your business tax bill. Contact us for our advice, and we’ll see what we can do for you.