There has been the usual political speculation that taxes will be increased 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 assuming that business taxes will increase?
Corporation tax
It has been rumoured that corporation tax (CT) will be increased from the present 19% to 24%. If implemented this will be a significant increase.
An increase in CT is usually effective from the beginning of the next fiscal year, accordingly, 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.
- 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.
Income tax
Increasing income tax (IT) rates is less likely and 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 IT rates.
Taxpayers may experience variations across the UK as IT rates are now set on a regional basis.
Capital Gains Tax (CGT)
It has been suggested in the national press 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 corporation tax changes, there may be an argument to bring forward disposals subject to CGT to anticipate 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 considered before undertaking any tax saving strategy. We therefore advise readers to seek professional advice before acting on any matters discussed in this article.