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Business Tax Planning – Income and Expenditure

Over the past couple of weeks we have looked into tax planning opportunities to reduce liability against personal tax. This week we will now explore ways in which you can potentially reduce your tax liability in business. To read earlier blogs in the tax planning series click here (link).

Defer or accelerate income and/or expenditure

Depending on your business capacity, availability of resources and expected result for the year you may be able to defer or accelerate income and/or expenditure. For example you may have orders that you could fulfil before your year end. To do so would boost your profits and accelerate receipts from your customers.

Alternatively if you are operating at or near capacity you may be reluctant to take on more work to preserve your quality standards. This means deferring the supply and income and therefore payment from your customers.

If you have accelerated profits and the tax liability there are a number of ways you may be able to reduce that liability:

Stock provisions

If you have old, obsolete or damaged stock make sure that the carrying value at your year end reflects the condition of the stock. If you cannot recover the cost those items should be written down to a recoverable amount, which may be nil.

Bad debt provisions

Similarly outstanding debts from customers may not be recoverable in full. This may be because the customer is in liquidation, financial difficulties or cannot be traced. If this is the case you can make a provision for doubtful debts which will reduce amounts owing to you in your accounts and reduce profits. You should still pursue the full debt in the meantime. If the outstanding amounts are in dispute and you anticipate offering a discount to settle you can reflect that reduction in your accounts at the year end.

Change financial period end

One further idea for business tax planning is to consider changing the financial year end of your business. This may be the case if you operate a seasonal business. You may decide if a significant amount of your activity falls between September and December that a financial year ending during that period is inconvenient and that it is better to have your year end at a quieter time for the business, perhaps March or June for example. If you run your business through a company there are restrictions on the how short or how long an accounting period can be and how often you can change it. If you have an unincorporated business you should speak to your accountant about the impact of a change of accounting period on how profits are taxed and payments of tax.

Other business tax planning ideas

If you are considering rewarding your employees you may be able to pay them bonuses or pay additional employer pension contributions. We will look at these ideas in more detail in next week’s blog.

Before you take any action on business tax planning we would recommend that you:

  • Discuss the plan with your accountant
  • Confirm you have the available resources if it involves making payments
  • Confirm timing of the transaction as it may be critical to achieving desired outcome
  • Consider whether it makes sense for the business as a whole

If you would like to discuss the tax planning opportunities available for your business contact us.

Ian Lowry



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