Why?
This type of planning is an overlooked tool in any business’
arsenal that can be utilised to look at the business holistically to consider
what has happened and what is coming up in the short/medium term although this
is not limited.
When?
There is no hard and fast rule on when, however we would
normally suggest the last two months of a business’s financial year is an ideal
time. At this point there will be sufficient financial data for the current
year to enable you to review, as well as have an idea of how the business is
likely to perform in the period from when you choose to review to the year-end.
Furthermore, this is usually a time when a business considers commencing
budgets for the forthcoming year.
Usually, a business will undertake reviews with management
accounts if they are completed monthly or quarterly for example, but the idea
of year-end planning is a full-scale review without specific focus on the
numbers.
What?
The below is not an exhaustive list by any means but
includes some of the more common topics that could be considered.
Capital expenditure (Capex)
With new capex being usually the largest item of expenditure
during the year, a business may ensure the relevant tax relief is obtained as
close to the time of purchase as possible. This way the potential short-term impact
to cashflow will likely be reduced.
The super-deduction expires on 31st
March 2023. If obtaining the relief is the main driver of the purchase, it is
essential that any qualifying expenditure needs to be made and the asset in use
prior to this date to enable the additional relief. Qualifying for the relief
will allow for a greater tax saving compared to the annual investment allowance.
By making this type of investment it could potentially have
an immediate cashflow effect. It could be the case however where financing is
available to reduce the impact. Financing costs are allowable for corporation
tax relief.
Capex is broadly driven by long term goals, workload,
technological advancements, or efficiencies. Budgeting will need to be worked through
to ensure the business can afford the purchase and if financing will be used
that the repayments are affordable.
Likewise, it is also a good time to review the remainder of
the asset register. Ineffective plant and machinery or other assets could perhaps
be disposed of to ensure an asset not being utilised is cleared. This may also
ease any cashflow burden on any new investment made.
Pension contributions
Making pension contributions has long been an efficient way
of saving tax and also if planning has been undertaken and a cash surplus is
likely, it is an efficient way of long-term planning also.
Company directors that contribute into a qualifying scheme will
give rise to an allowable expense against corporation tax and relief will be
given at the company’s applicable rate of tax which may increase after 1st
April to potentially a maximum of 25%. These contributions will present an
opportunity to reduce profits charged at the higher or tapered rates of
corporation tax.
Bonuses
Unlike the pension contributions mentioned above, bonuses
can be accrued within the accounts and so long as these are paid within 9
months of the financial year-end, they will be allowable against corporation
tax.
If looking at issuing a director bonus, there are several
factors which need to be considered when weighing up the potential tax saving
between the company and the director personally such as the availability of
personal allowance and basic rate band, and whether the company qualified for
the employment allowance to set off against any employer’s NIC.
Employee incentives
With the ever-changing world we are currently facing, staff
recruitment and retention is an increasing threat to any business. More
businesses are now considering ways in which to increase retention.
A promotion and/or pay rise may be a great way to reward to
employees and allow them to know that their efforts have been recognised. This
is a common method, but due to recent events, staff are now also looking for
other diversified methods of being rewarded.
Share options, training and private medial cover are common
examples of incentivising strategies a business may use. When hiring new employees,
it is common a business will now list benefits provided to promote themselves
and standout in a packed recruitment market.
Future planning
Establishing some goals for the next financial year can
always focus the mind and by communicating these to the team can be a great
driver for motivation. Setting your sights high but making sure they are achievable
will allow everyone strive towards one common goal.
The above are just some options, but here at Lovewell Blake
we encourage our clients to have a meeting prior to their financial year-end to
discuss their options. It is likely whilst at the meeting more and more ideas
are introduced which then allows for further conversation and development.
