Tax Planning Companies are a popular business structure as they generally result in less tax being paid overall. We would be happy to discuss the implications of incorporation with you before you decide whether or not to incorporate your business. Payment of tax Corporation tax is usually payable nine months and one day after the year end, so the choice of accounting date has no tax consequence. Practical Tip HMRC issues toolkits on various tax topics to help taxpayers and their agents comply with tax law. One of themain areas of non compliance identified by HMRC is poor record keeping and this applies to all types of business. If you would like guidance on what records to keep please get in touch. Tax relief for expenditure on Research and Development (R&D) Companies with expenditure in qualifying R&D activities can receive tax relief - the rates of the relief depend on the type of company: • for small and medium-sized companies (SMEs) paying corporation tax at 19%, the effective rate of tax relief is 43.7% (that is a tax deduction of 230% on the expenditure). For SMEs not in profit, the relief can be converted into a tax credit payment, effectively worth 33.35% of the expenditure, which is restricted to £20,000 plus three times the company’s relevant expenditure on workers
Further rules prevent the avoidance of the charge by repaying the loan before the nine month date and then effectively withdrawing the same money shortly afterwards. A ‘30 day rule’ applies if at least £5,000 is repaid to the company and within 30 days new loans or advances of at least £5,000 are made to the shareholder. The old loan is effectively treated as if it has not been repaid. A further rule stops the tax charge being avoided by waiting 31 days before the company advances further funds to the shareholder. This is a complex area so please do get in touch if this is an issue for you and your company. Planning Tip Ensure that sufficient salary and dividends are drawn from the business to prevent these charges arising unnecessarily on an overdrawn director’s current account. We can also ensure that overdrawn accounts are cleared properly. Please contact us if you would like to discuss the right options for you and your business. Tax on profits The profits of a limited company are calculated in a similar way as for unincorporated businesses and the same rules with regard to expenses and capital allowances generally apply. Remember though that the salaries paid to directors, but not the dividends paid to shareholders, are deductible from the profits before they are taxed.
• an ‘above the line’ credit exists for companies not qualifying under the SME scheme. This is known as the R&D Expenditure Credit (RDEC) scheme and allows a claim to a taxable credit of 13%. The credit is fully payable, net of tax, to companies with no corporation tax liability. This is a complex area. Please get in touch if you would like to know more. Value Added Tax (VAT) VAT is a tax ultimately paid by the final consumer and businesses act as the collectors of the tax. There are heavy fines for failing to operate the system properly.
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Running a Business
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