Article
Tax strategy - two ways to reduce business costs
Article
Tax strategy - two ways to reduce business costs
17 Apr 2023
3 minute read
Business owners looking for ways to cut costs should ensure they have a tax strategy and that it includes taking advantage of new Capital Allowances and R&D tax relief announced in the Spring 2023 Budget.
Business owners looking for ways to cut costs should ensure they have a tax strategy and that it includes taking advantage of new Capital Allowances and R&D tax relief announced in the Spring 2023 Budget.
In order to ensure you aren’t paying more tax than you need, especially with changes to Corporation Tax rates, you should consider Capital Allowances and R&D reliefs as part of your tax strategy.
Tax strategy to mitigate the Corporation Tax rise
The main rate of Corporation Tax, which businesses pay on taxable profits over £250,000, increased from 19% to 25% (as announced previously by the government) on 1 April 2023. Small businesses with profits of less than £50,000 will continue to pay 19% and the rate increases gradually as a company’s profits rise.
So, if you’re an SME with profits over £50,000 you will want to look at ways to mitigate the rise. For example, if a company has profits of £120,000 then the first £50,000 will be at 19% and the next £70,000 will be at more than 25% as it will be charged at the marginal rate.
Two ways to cut your tax bill
1. Capital Allowances
- Full Expensing: Since 1 April 2023 you can deduct 100% of the cost of certain plant and machinery from your profits before tax. You can do this straight away, rather than over the life of the asset. This allowance is available until 31 March 2026 and applies to spending on main rate equipment such as:
- Computers and printers.
- Office equipment such as chairs and desks.
- Warehouse machinery, tools and construction items.
- Vehicles like tractors, lorries and vans.
- Fixtures such as kitchen and bathroom fittings and fire alarm systems.
- 50% first-year allowance (FYA): you can deduct 50% of the cost of other plant and machinery, known as special rate assets, from your profits during the year of purchase. This allowance is available until 31 March 2026 and includes:
- Long-life assets such as solar panels and thermal insulation on buildings.
- For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs). 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
- Eligible loss-making companies will be able to claim £27 from HMRC for every £100 of R&D investment, instead of £18.60 for non-R&D- intensive loss makers. The scope for qualification was recently expanded to include data and cloud computing costs.
- Sectors might include those in the pharmaceutical and life sciences industry, the digital sector like computer programming and consultancy, manufacturing firms, professional, scientific and technical activities firms.
- The enhanced credit will be claimable in respect of expenditure incurred on or after 1 April 2023 on your tax return (where it is submitted after the date on which the legislation comes into force) or by amendment to the tax return, within the normal time limits.
- The R&D Expenditure Credit (RDEC) rate was permanently increased from 13% to 20% In the Autumn Statement 2022 and came into force on 1 April 2023. RDEC is primarily aimed at larger companies but is claimed by SMEs in some cases.
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Speak to an expert for advice on
+44-1865 292200 or get in touch online to find out how Shaw Gibbs can help you
Email
info@shawgibbs.com
