Whether you are running a small, medium or large scale business, tax compliance is mandatory. It is therefore important that you conduct effective tax planning and develop the best strategies that will help you reduce the amount of tax you pay. Year-end refers to the day in which a business financial year ends and makes way for a new financial year. It is also the deadline for a business tax expectations. Tax planning is usually a serious matter for businesses because failure to comply with certain tax expectations can lead to legal problems for a business or its owners in the case of unlimited liability proprietors. It is therefore important for businesses to sit down with their accountants and carefully plan on how they can effectively and legally minimise their tax expectations to the lowest amount possible without risking tax evasion accusations.
The following are the best tips they can take advantage of during their year-end tax planning:
Investing as much profit as you can
The simplest, quickest and most efficient way for companies or SMEs to reduce the amount of tax expected of them to pay is usually by investing as much of their profit as they can spare. This is because businesses are usually entitled to an investment allowance annually which is equivalent to an 100% deduction of tax. Businesses are therefore advised to make fixed asset purchases during this period e.g. vehicles, machines and the likes. However, it is also important for businesses not to over invest their profit so much that it cripples them in the next financial year just because they would like to reduce their tax bill. They must therefore, find a way to strike a balance.
Changing their accounting calendar
Most businesses in the UK are not even aware that they are allowed to change their business calendar every six years. This should be a measure reserved for extreme scenarios as it only allowed once in every six years. Therefore, if your businesses has been going through a rough patch, registering a stream of continuous losses over the past period but it is still expected to comply with tax payment requirements, then this would be a good option. However, it would only help if a business expects improvements in its sales over a certain period. If it does not expect any improvements then this measure would still be futile.
Delaying sales until the next business year begins
This strategy would work best for supply companies, where they can delay the sale of their products by their outlets until their business year expires and then operations can resume as normal. It is not illegal as all you will have done is to forward the taxable profit to the next accounting period. This is however not an option for service industries as in their case, services are taxed at the date the service was completed and not the day it is invoiced.
These are some of the best business tax planning strategies that a business can employ while planning for their year-end tax responsibilities in order to not suffer huge losses from paying more tax bills than they can afford to at a particular time.