Capital allowances for companies - full expensing In addition to the AIA and general writing down allowances which are available to companies as well as unincorporated businesses, from 1 April 2023 companies investing in qualifying new plant and machinery will be allowed to claim: • full expensing providing allowances of 100% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances • a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. This relief is not available for unincorporated businesses and will typically be most useful where companies or groups invest over the AIA of £1,000,000 in new plant and machinery.
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: • Small and medium-sized companies (SMEs) receive a tax deduction of 186% on the expenditure. This can result in an additional tax saving of up to 22.8% of the expenditure. For SMEs not in profit, the relief can be converted into a tax credit payment of 10% (or 14.5% for R&D intensive companies). • 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 20%. 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. Payment of tax Corporation tax is usually payable nine months and one day after the year end but payments may be accelerated for large companies. Tax on ‘drawings’ Directors of a company will normally be paid a salary and this is taxed under PAYE as for all employees. The cost of this, including the employer’s NICs, is generally an allowable expense of the company. Shareholders of the company in contrast may be rewarded by the payment of dividends on their shares. Dividends are paid out of profits after taxation. Tax Tip In most small companies the directors and shareholders are one and the same and so they can choose the most tax efficient way to pay themselves. Using dividends can result in savings in NICs. However, this requires careful planning, especially given the increase in corporation tax rates. Please talk to us to decide what is appropriate for you.
Warning - close company loans to participators
A close company (which generally includes owner managed companies) may be taxed where it has made a loan or advance to individuals or their family members who have an interest or shares in the company (known as participators). The tax charge is
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Running a Business
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