Corporate tax planning strategies for this tax year

Happy new tax year!

We entered the 2024/25 fiscal year on 6 April and now is the perfect opportunity to take advantage of the allowances, reliefs, and exemptions that your business can claim within the next 12 months.

“These can give you a distinct tax advantage over your competitors and reduce your overall expenses significantly,” says Sharla Dandy, Partner at McGills.

“The best way to manage and apply for these is through your accountant and tax adviser – we can streamline the process considerably and guide you on which ones to apply for and when.”

However, if you are yet to engage an accountant, here are some of the many options we’ll be advising clients on this year.

The VAT registration threshold has increased

The threshold for VAT has risen from £85,000 to £90,000 this year as part of the Chancellor’s attempt to support small businesses in the Spring Budget.

“This change will simplify your tax compliance and may mean that you can defer your VAT registration,” says Sharla.

“You may need to reassess your growth strategies in light of the new threshold and strategically plan for when you register for VAT as a result.”

Registering for VAT before your profits reach the threshold can allow you to reclaim VAT on your business expenses, enhancing your cash flow and presenting your business as more established to potential clients and suppliers.

Business investment advice

The Annual Investment Allowance, which remains at £1 million this year, enables you to immediately deduct the cost of assets from your profits.

Full expensing also allows you to fully deduct the cost of qualifying new plant and machinery from your taxable profits in the year you make the investment.

Until 31 March 2026, you can take advantage of this to significantly reduce your taxable income and tax bill by writing off 100 per cent of these investments immediately.

“This is especially valuable if you’re investing in plant and machinery, as it allows for a full deduction in the year of purchase, effectively reducing your taxable profit.”

Additionally, “it encourages you to accelerate your investment plans, promoting growth and innovation within your business,” says Sharla.

Equally, R&D tax relief can help you promote innovation, reducing your taxable profits, but it is important to be aware of the merged schemes that are now in place.

The combined scheme of R&D Expenditure Credit (RDEC) and Enhanced R&D Intensive Support (ERIS) supersedes the previous RDEC and Small and Medium-Sized Enterprise (SME) schemes.

Under this merged regime, companies, regardless of size, will receive an above-the-line credit, with a special provision for R&D-intensive SMEs​.

The merged scheme has reduced the R&D intensity threshold from 40 per cent to 30 per cent for accounting periods beginning on or after 1 April 2024.

This makes it easier for more SMEs to qualify for enhanced support if their R&D expenditure constitutes at least 30 per cent of their total expenditure.

Moreover, a one-year grace period is available for companies that fail to meet the intensity threshold but have done so in the previous year, allowing them to continue claiming enhanced support​​.

Similarly, looking into the next tax year (2024/25), investments in digital and green technologies may offer future tax benefits and allow you to claim Enhanced Capital Allowances against your profits.

A note on salaries, bonuses, and dividends

“Balancing remuneration types can significantly reduce your tax burdens, with the National Insurance Contributions (NICs) reduction from 6 April affecting optimal salary and dividend structuring.

As with all other forms of remuneration, it’s best to discuss this with your accountant or payroll specialist before you proceed.

Compliance considerations this tax year

The Making Tax Digital (MTD) scheme means that, from April 2026, all unincorporated businesses will need to submit digital records and quarterly submissions when their income exceeds £50,000.

However, we are advising that our clients prepare for this change early and employ MTD compliant software before the deadline date and before they reach the £50,000 threshold.

The Spring Budget also brought in added compliance considerations through the “basis period reform.”

Sharla says: “Basis period reform will also align unincorporated business’s income assessment with the tax year and increase your need for comprehensive reporting and documentation procedures.

“In 2024/25, properly transitioning and understanding these new compliance requirements is going to be crucial for businesses in the long term.”

Is incorporation still the right choice?

Incorporating, or becoming a limited company, traditionally offered lower Corporation Tax rates, and allowed for more flexible tax planning.

Many of our clients have considered this approach as a strategy for tax mitigation.

“It used to be an effective method for sole traders and partners to lessen their Income Tax burdens by paying Corporation Tax instead,” says Sharla.

However, with the recent reduction in NICs, the tax benefits of incorporation are now under scrutiny, particularly when considering the additional administrative responsibilities it entails.

Incorporated companies with profits up to £50,000 face a Corporation Tax rate of 19 per cent.

For those generating profits above £250,000, the rate increases to 25 per cent.

Profits that fall between these figures are subject to a tapered rate system which applies marginal relief, resulting in a gradual increase in the tax rate from 19 per cent to 25 per cent as profits rise.

“The tiered system emphasises the importance of managing your profitability to minimise your tax liabilities effectively,” says Sharla.

“Additionally, optimising how you manage dividends and salaries within a limited company can further reduce your tax liabilities.”

In light of the changes in NICs, the advantages of incorporation require a more nuanced consideration.

Sharla says: “There are plenty of benefits to incorporation beyond tax savings, especially if you choose not to withdraw all profits directly.

“For instance, investing in pensions or acquiring electric vehicles through the company can present significant tax-efficient opportunities.

“Many of our clients opt for incorporation for its limited liability protection or to enhance their business’s perceived stature rather than any tax benefits it might offer.”

Therefore, the question now shifts from “is incorporation beneficial?” to “does it align with your specific business needs and long-term financial goals?”

Speaking to your accountant

The best way to reduce your expenses this tax year, and remain compliant throughout, is to speak to your accountant at the earliest opportunity.

We can help you reduce your tax liabilities and plan efficiently for the year ahead.

Please get in touch for more information or tailored guidance based on your business’s unique circumstances.