Are tax increases on the way?
There has been more than the usual amount of speculation in the media in recent days that tax increases are coming in the forthcoming budget to pay for COVID grants and support.
Leaving aside the economic arguments for and against, what planning adjustments can we make now if we accept that business taxes are soon likely to increase?
It has been rumoured that Corporation Tax (CT) will be increased from the present 19% to 24%. If implemented this will be a significant additional burden on businesses.
An increase in CT usually applies from the beginning of the next fiscal year, so any announcement in the Autumn Budget 2020 is unlikely to apply until 1 April 2021, at the earliest.
If an increase is announced, what sensible planning opportunities could we undertake now to mitigate this rise in company taxation?
The following strategies might be considered:
Advance income streams
If you can organise work-flow to advance the billing and completion of billable projects and supplies before 31 March 2021 – assuming CT rates do not increase until 1 April 2021 – then any profits created by these supplies will be taxed at the lower rate. Bear in mind though that the tax on additional profits will be brought forward and will need to be paid earlier.
Defer revenue expenditure
If you can defer expenditure that you would normally treat as a business cost – without prejudicing your overall business plans – then it makes sense to incur these costs after 1 April 2021, if and when CT rates increase.
Defer capital expenditure
As with the previous tactic, if you can defer capital expenditure on new plant, vehicles or other equipment then it makes sense to incur these costs after 1 April 2021, when you can write off up to 100% of allowable costs and reduce CT liabilities at the higher rate.
Increasing income tax (IT) rates is less likely but if this turns out to be the case, self-employed and employed persons may have to accommodate minor changes to National Insurance and tax allowances but no significant changes – if at all – in Income Tax rates.
Taxpayers may experience variations across the UK as Income Tax rates are now set on a regional basis.
Capital Gains Tax (CGT)
It has been suggested in the national press that the Chancellor is considering alignment of CGT rates with income tax rates. If this change did occur it would have a significant impact on the amount of CGT payable.
As with the Corporation Tax changes, there may be an argument to bring forward disposals subject to CGT in advance of these changes.
Planning is imperative
However, basing tax planning decisions on speculative announcements, especially as these may be motivated by political considerations is clearly unwise unless there are compelling reasons for doing so.
We all have unique business and personal financial circumstances and these must be considered as a whole before looking at any tax saving strategy.
Please seek professional advice before acting on any matters discussed in this article.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.