Year End Tax Planning for Business Owners

Business owners often leave year end tax planning too late.

You’re so busy with the day to day that you don’t always think about tax planning.

And by the time your accountant gives you the draft accounts, you might think that it’s too late to do anything meaningful to reduce your corporation tax.

If your company year end is in the next 3 months, we suggest that you find some time for some planning. It’s worth the time to save some tax isn’t it?

Company Pension Contributions

Getting your company to pay pension contributions for you is very tax efficient for both you and the business. It’s also a great way of moving company assets into your personal assets. Without paying tax.

You can deduct your company pension contributions from your profits for corporation tax purposes.

But remember that the pension contribution has to be paid in the accounting period. You’re not able to accrue it for accounting purposes like other expenses.

You can read more about paying company pension contributions here

What can you do if you’ve you’ve missed your year end deadline?

One option might be to pay a company contribution at the start of your next year to create or increase a tax loss. In which case you can carry the loss back or forward to reduce your company’s tax for the previous or a later year.

For example:

John is a director and shareholder of PlanA Ltd. He receives an annual salary of £12,000 and has dividends of £80,000 for the last 5 years.

He has no other income so he qualifies for the standard Annual Allowance (£40,000 in 2019/20 and 2020/21).

John has been paying a small annual contribution of £1,200 into his personal pension on the 1 January each year for the last 5 years.

John is limited to a maximum personal contribution of £10,800 (£12,000 – £1,200) in the current tax year ending 5th April 2020.

But HMRC rules allow his company to pay a total contribution of up to £155,200 in the current tax year.

John’s company has built up plenty of cash that isn’t needed for working capital, so he’d like to find a tax efficient way of moving it out of the company into a personal asset. He doesn’t want to pay 45% income tax.

Unfortunately, John is so busy in the run up to his company year end that he doesn’t get round to setting up his company pension contribution.

His year end management accounts show profits of £100,000 (before pension contributions). And John is pretty confident that profits will be similar in the next year.

What can he do?

John’s company pays the maximum employer contribution for him, which will be an expense against corporation tax in the year it’s paid.

However if profits for the previous accounting year are £100,000 and the pension contribution is £155,200 it is likely to create a loss of £55,200.

John can ask his accountant to elect to carry back the loss against his company’s next corporation tax. Or if preferable he can carry the loss forward.

Want to know more?

Call 0117 290 0370 if you’d like to find out more about how we work with business owners. Ask to book a free 20 minutes telephone consultation with Hilary Carden.

Alternatively drop us an email to:

More Reading:

Income over £100,00?

Dividends and Pensions

What is Carry Forward?

Important Risk Warnings:

We recommend that you run any company tax planning strategies past your accountant.

This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change. Correct as at April 2019. If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.

The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.

  • Hillary Carden

    Hilary is a force to be reckoned with in the pensions field. She founded Cardens in 1993 and Cardens Pension Trustees Ltd in 1995 and became one of the first women to become a Registered Life Planner® and with 30+ years experience of advising on and managing pension schemes, she really is an expert in retirement and financial planning.

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