Welcome to our detailed guide where we explore the ins and outs of corporate taxation. We’ll be taking a closer look at Corporation Tax in London, quarterly installment payments, capital allowances and how top accounting firms in London can help. 

Plus, we’ve got the scoop on the upcoming changes set to kick in on April 1, 2024, for the Research & Development tax regime. Stick around for a simplified take on all things tax-related!

What Is Corporation Tax in London

Corporation Tax in London is a tax imposed on the profits of corporations or other legal entities. It’s typically levied at the national level by governments on the income or profit earned by businesses during a particular accounting period. The tax rate and regulations governing Corporation Tax in London vary widely from country to country.

Corporation Tax in london UK – Corporate Tax Rate

In 2023, the UK faced ongoing economic challenges due to the cost-of-living crisis. The Chancellor had a tough job trying to combat inflation while also supporting the economy and wooing voters ahead of the 2024 UK General Election.

When it comes to Corporation Tax in london, things have settled down a bit. The big news was the introduction of Full Expensing for capital expenditure. This means companies can now enjoy a 100% tax deduction for certain purchases of capital assets, and this change is here to stay.

Looking ahead to 2024, there aren’t as many major changes to the main Corporation Tax in london rates to worry about. However, it’s still crucial for companies to plan ahead and consider the usual tax planning strategies as they approach the year end.

Corporation Tax in London UK Small Business

Tax Rates – 25% Small Company Rate

Starting April 1, 2023, the main rate of Corporation Tax in London went up from 19% to 25%. For businesses whose accounting periods span this date, profits are divided based on time.

Companies making less than £50,000 in profits still get taxed at 19%. Those with profits ranging between £50,000 and £250,000 face a tapered rate.

These thresholds are adjusted for companies within a corporate group or those associated with other companies.

For companies with a year ending in March 2024 and beyond, they’ll be subject to the full 25% tax rate, considering the mentioned thresholds.

Companies need to think about cash flow and be prepared for a higher tax bill, even if their profits have stayed the same.

Get in touch with Accounting Firms For Small Business.

Quarterly Instalment Payments (QIPS)

Companies need to keep an eye on their tax obligations. If their taxable profits exceed £1.5 million (or £10 million for the first time being classified as large), they’re required to make quarterly instalment payments.

For “very large” companies with taxable profits over £20 million, there’s an even more accelerated quarterly payment schedule. The thresholds can be adjusted based on the number of related companies.

Before April 1, 2023, the calculation considered the number of ‘51% group companies.’ However, from the first accounting period starting after April 1, 2023, it now includes all ‘associated companies,’ which encompasses companies under common control, even if they weren’t part of the same group.

While this change took effect last year, it might not have immediately affected many companies. But for those brought into the quarterly payments regime, the accelerated payments are starting to kick in. If your company might be impacted, it’s crucial to assess the changes and plan accordingly.

Losses

When companies face losses, it’s a crucial moment for planning. They often need to decide how to make the most of those losses.

Sometimes, losses can be carried back, usually up to 12 months. If a company is part of a group where other companies are paying taxes, it can also make a sideways loss relief claim through group relief.

When Corporation Tax in London rates are stable, decisions usually come down to managing cash flow since there’s not much difference in tax benefits between the available options.

But with the main Corporation Tax in London rate bumped up to 25%, there are now differences in the amount of tax payable depending on the choices made.

Before April 2023, carrying back losses and group relief claims meant saving tax at the rate of 19%. However, carrying losses forward after April 2023 means saving tax at the higher 25% rate. This difference will be relevant until periods ending in March 2025 and onwards.

Choosing to carry forward losses requires weighing the tax benefits against the impact on cash flow. It’s also important to consider forecasts of future profits or losses.

If companies have previously surrendered losses for tax credits, like through the R&D scheme, or made loss carry back claims, they can amend these within two years of the period end to take advantage of the higher tax saving rate of 25% instead of 19%. 

But it’s essential to note that any previous repayment received would need to be repaid, and there could be interest on underpayment of tax to consider.

Income and Expenditure

When it comes to year-end tax planning, the usual advice is to defer income whenever you can, so you can make the most of all the allowances and deductions available. But with the increase in tax rates, there’s been a shift in thinking. Now, it’s also worth considering the opposite approach—if cash flow isn’t an issue, you might want to speed up your income and profits to benefit from the lower rate while it lasts.

Looking ahead to future years when we’re taxed at the full 25% rate (from periods ending in March 2024 onwards), it’s smart to go back to deferring income and speeding up expenditure when it makes sense.

Here’s a bit more detail on why:

– Deferring Income: This means delaying receiving income until the next tax year, so you pay tax on it at the higher rate. It’s a strategy that can help lower your tax bill if you expect rates to stay high.

– Accelerating Expenditure: On the flip side, bringing forward expenses allows you to claim deductions against your income at the lower rate. This can reduce your tax liability and increase your tax efficiency.

So, as the tax landscape evolves, it’s essential to adjust your strategies accordingly to make the most of the changing rates and rules.

Income

When it comes to taxing income, we follow generally accepted accounting principles (GAAP). According to GAAP, income is recognized when the work is completed or goods are delivered, not necessarily when the payment is received.

While it’s possible to speed up income into an earlier accounting period or delay it to a later one, it’s crucial to maintain consistency in applying accounting policies and adhere to GAAP guidelines. This ensures that your financial records accurately reflect your business activities and comply with established standards.

Expenditure

Companies have various methods to influence when expenses show up in their accounting periods. For example, they can time planned repair costs to occur in either an earlier or later period.

Provisions can be set up in the accounts for future expenses to speed up a tax deduction. Alternatively, companies can reassess existing provisions to see if they can be lowered or reversed.

Usually, if a provision aligns with GAAP (generally accepted accounting principles), it’s acceptable for tax purposes unless there are specific rules preventing deductions for that particular expenditure.

Here are some specific areas of expenditure that are especially worth looking into:

  • Timing of Repairs: Planning when to incur repair costs can affect the timing of expenses in your financial records.
  • Provisions: Setting aside funds for future costs can help accelerate tax deductions, but it’s important to ensure they comply with GAAP.
  • Reviewing Existing Provisions: Take a closer look at existing provisions to see if they can be reduced or reversed, potentially providing tax benefits.

By paying attention to these areas, companies can optimize their tax strategies and potentially reduce their tax burden.

Bad debts

It’s essential for accountants in London to thoroughly review their debtors to identify any potential issues with bad debtors. This involves assessing whether impairments or provisions need to be made.

Keeping detailed evidence is crucial to support any decisions regarding provisions or write-offs for bad debtors. This evidence should demonstrate that the circumstances leading to the provision or write-off existed as of the balance sheet date.

By conducting a detailed review and maintaining proper documentation, companies can ensure their financial records accurately reflect the true financial position regarding debtors and mitigate risks associated with bad debts.

Stock

It’s important to approach this area with care. Companies may have the opportunity to make specific provisions against damaged, slow-moving, or obsolete stock.

This means they can account for potential losses related to inventory that may not be sold at its original value. By making these provisions, companies can accurately reflect the true value of their inventory on their balance sheets.

However, it’s crucial to assess each situation carefully and ensure that any provisions made are based on reliable evidence and in line with accounting standards. This helps maintain the integrity of financial reporting and ensures transparency for stakeholders.

Bonuses

Timing is critical when it comes to determining the tax relief for bonuses in a company. To accelerate tax relief into an earlier period before the year end, companies can make provisions for bonuses. 

However, it’s essential to demonstrate that the liability to make these payments existed as of the balance sheet date. Additionally, the bonuses must be paid within nine months of the year end to qualify for tax relief in the earlier period.

Final Thoughts

In conclusion, for those seeking reliable financial guidance, the expertise of Accountants Preston, Accountants in Romford, Accounting Firms in Liverpool Street, Accountants Middlesbrough, Accountants Canary Wharf, and Accountants in Ilford is invaluable

Whether you require practical accounting training or expert advice, these professionals are equipped to provide tailored solutions. With their specialized knowledge and dedication, they play a crucial role in driving financial growth and stability.

Leave a Reply

Your email address will not be published.

You may use these <abbr title="HyperText Markup Language">HTML</abbr> tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*