Welcome to the December edition of TaxMatters. We hope that you find this informative. Please contact us if you wish to discuss any matters in more detail.
IT’S IMPORTANT TO HAVE UP TO DATE PROFIT FORECASTS FOR TAX
In order that we can help predict your taxable profits and tax liabilities we need up to date profit figures and projections. One of the advantages of keeping your business accounts in a computerised form, ideally on the Cloud, is that we can review your latest financial position and help you prepare more reliable profit forecasts to estimate your tax bills.
Unincorporated Businesses
Reliable profit forecasts are particularly important at the moment, with the changes to the taxation of sole traders and partnerships from 2024/25, and the complicated transitional rules that apply in 2023/24. The transitional rules may result in higher tax bills if your business does not have a 31 March or 5 April year end. If we have reliable profit forecasts for your business we can determine whether or not changing your business year end would be beneficial, and also determine the timing of that change.
Limited Companies
From 1 April 2023 the rate of corporation tax that a company pays depends on the level of the company’s profits and the number of “associated companies”. “Associated companies” are those under common control, which may include companies controlled by close relatives under certain circumstances.
Assuming a company has no “associated companies” then the 19% corporation tax rate continues to apply where profits are no more than £50,000 and the 25% corporation tax rate applies where profits exceed £250,000 a year. The £50,000 and £250,000 limits are divided by the number of “associated companies”.
In between the limits there is marginal relief to achieve the transition between 19% and 25%. The marginal tax rate between £50,000 and £250,000 is 26.5% and thus tax planning can be particularly effective.
For example buying new equipment or paying additional pension contributions on behalf of the directors would potentially save 26.5% corporation tax. Timing of expenditure is critical here, as the expenses would need to be incurred before the year end. We would recommend a review at least 2 months before the company’s year-end, with reliable profit forecasts available to allow time for pre-year-end planning.
WHEN ARE COMPANIES ASSOCIATED?
“Associated companies” for corporation tax purposes are those under common control. The most obvious situation is where one of the companies has control of the other, or both of the companies are under the control of the same person or persons. In determining control, the rights and powers of an individual’s associates, broadly close relatives, may be taken into consideration, but only where there is substantial commercial interdependence between the two companies. This could be financial, economic, or organisational interdependence and will depend on the facts of each case. An example would be where a brother and sister each have their own limited companies and there is a large loan or significant trading between them, such that one is dependent upon the other.
This is not a straightforward matter and we can of course advise you on whether or not it impacts your company.
LARGER COMPANIES ARE REQUIRED TO PAY TAX QUARTERLY
Although not a new measure, where a company has profits in excess of £1,500,000 a year it is required to estimate and pay corporation tax quarterly during the year, rather than 9 months after the end of its accounting period. What has changed since 1 April 2023 is that the £1,500,000 threshold is divided by the number of “associated companies” in the accounting period, as defined above. Thus, if a company has two associated companies, if any of them has profits in excess of £500,000, quarterly instalments of corporation tax will be required. If that company has a 31 March 2024 year end, it needs to pay its estimated corporation tax liability according to the following schedule:
- 25% of its estimated liability by 14 October 2023
- 50% of its estimated liability by 14 January 2024
- 75% of its estimated liability by 14 April 2024
- 100% of its corporation tax liability by 14 July 2024.
As mentioned above, accurate profit forecasts are required in order to compute the quarterly payments.
Note that this is a significant acceleration of tax payments compared to the normal 9-month payment interval. Consequently, there is a one year “grace period” that applies for the first year the threshold is breached. You might also wish to consider minimizing the number of associated companies to avoid this cash flow disadvantage.
ARE YOU DUE A NATIONAL INSURANCE REFUND ON CAR ALLOWANCES?
Recent tribunal decisions in favour of employing companies and against HMRC has caused many organisations in similar circumstance to make protective claims for the recovery of National Insurance Contributions (NIC) in respect of car allowances paid to employees using their own cars or vans for business journeys.
Many employers have a policy of only reimbursing the fuel costs associated with those business journeys (for example at 15p per mile) rather than paying the maximum HMRC Approved Mileage Allowance Payments (‘AMAP’) rates (currently 45p/25p per mile) on a tax and NIC free basis. The employee can then make a claim for the difference between the 45p allowance and the amount received from the employer as a deduction from their employment income.
The recent Upper Tribunal decisions (which HMRC have confirmed they will not appeal) have held that the amounts paid by the employer in respect of business mileage are exempt from NIC and consequently employers should consider making a claim for repayment from HMRC.
Please contact us if you think you may be entitled to make such a repayment claim.
DIARY OF MAIN TAX EVENTS – DECEMBER 2023 / JANUARY 2024
| Date | What’s Due |
| 1/12/23 | Corporation tax payment for the year to 28/2/23 (unless quarterly instalments apply) |
| 19/12/23 | Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/12/23 (due 22/12/23 if you pay electronically) |
| 30/12/23 | Submission of 2023/24 self-assessment return (if the taxpayer wants HMRC to collect the tax owed through their wages or pension) |
| 1/1/24 | Corporation tax payment for the year to 31/3/23 (unless quarterly instalments apply) |
| 19/1/24 | Employer PAYE & NIC deductions, and CIS return and tax, for the month to 5/1/24 (due 22/1/24 if you pay electronically) |