QUESTION: My company’s year-end is September, and I recall that last year when my accountant was preparing the financial statements and tax return, she advised that the company’s tax bill will be higher this year as the government have increased the tax rates for companies. How much extra am I likely to pay and is there anything I can do to minimise the corporate tax liability?
ANSWER: The corporation tax rate has been 19 per cent since 2017, but from April 1 this year there is no longer just one rate of corporation tax, the rate at which company’s profits are taxed depend on the level of profits made.
· For companies whose profits exceed £250,000, they will pay corporation tax on all their taxable profits at the main rate of 25 per cent.
· For companies whose profits do not exceed £50,000, their taxable profits will be subject to corporation tax at the small company rate of 19 per cent.
· However, for companies whose profits fall below these two limits, they effectively will pay corporation tax on the first £50,000 of taxable profits at 19 per cent (the small company rate) and 26.5 per cent (the marginal rate) on the remainder of their profits.
It’s worth bearing in mind that the above limits are divided by the number of associated companies, i.e. group companies or potentially other companies that you also hold shares in. The limits are also adjusted on a time basis if your accounting period is less than 12 months.
You mention that your year-end is September, therefore your accounting period straddles the rate change. Your accountant will split your profits between the two periods: six months to March 31 2023 and six months to September 30. This is usually done by simply dividing your results on a time basis, but you may have an exceptional sale in the earlier period that you want to ensure all profits are subject to the 19 per cent, there is legislation that permits exceptional treatment for lumpy transactions that can be easily identified.
Since the company’s year-end has not yet passed, there are still some actions you can take to minimise your corporate tax liability. Bearing in mind your business needs for new plant and equipment, you could consider whether you have fully utilised the company’s annual investment allowance. If not, you might want to prioritise investing in capital equipment before the end of the year.
Have you as the business owner maximised the pension planning opportunity and utilised your full annual pension allowance. Provided a pension contribution is paid before the year end the company will get a CT deduction. However, there are limits to how much you can contribute therefore it is important you carefully plan any contributions with your financial advisor and tax advisor.
If you plan on paying staff bonuses this year to motivate your staff, you should also consider whether it is appropriate to accrue these bonuses in the September 2023 accounts assuming the employees are being rewarded for their performance in that accounting period and there is an expectation with employees that these will be payable. Provided the bonuses are then paid within nine months of the year end the company will be entitled to a tax deduction for them in 2023.
:: Feargal McCormack (firstname.lastname@example.org) is partner at FPM Accountants Ld (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies