Top Tax Tips for Banishing Business Blues

Monday 27 October

In these straightened times, what are the main issues affecting smaller businesses and what action can be taken to help weather the storm?

What are the main issues facing businesses?

Businesses today are finding it harder and harder to keep their heads above water in tough economic conditions. In addition to falling revenues and rising costs, a major concern for many businesses is their cashflow.

Lord Mandelson recently announced that to help ease cashflow all Government contracts with small businesses will now be settled within 10 days rather than the standard 30 days. . However, many businesses will not benefit as they will not have those types of contract.

Campaigns are currently being run by both The Sun and Daily Mail newspapers to help support smaller businesses. Both are supported by the Federation of Smaller Businesses (FSB) and quote David Cameron's Conservative Party proposals for the review of the tax burden given the current economic climate.

The Conservatives' main suggestions include reducing the small companies' rate of corporation tax to 20%, rather than the current Labour intention to raise it to 22% next April; introducing a VAT payment deferral period of up to 6 months; and cutting the rate of Employers' National Insurance by 1% for companies with less than 5 employees for at least 6 months. The Sun and the Daily Mail appear to concur with these suggestions, except they would see the small companies' rate of corporation tax reduced to 18% and 19% respectively.

Is there anything that can be done now?

Whether any of these suggestions are taken up, enhanced or replaced with other suggestions there are always methods of best practice which can reduce, remove or defer tax liabilities, making cash or cashflow savings that are even more crucial in times of economic downturn.

Grant Thornton's top tax tips include:

Capitalise on Capital Allowances

• Consider timing of capital expenditure to maximise availability of the £50,000 Annual Investment Allowance.
  
  
• Consider whether any short life asset elections may be made to accelerate allowances.
  
  
• There are enhanced capital allowances on energy saving and water saving equipment available, and these may also be claimed as repayable credits by loss making companies.
  
  
• Special Research and Development (R&D) allowances are available on equipment used for R&D at 100%.

Small business rate relief

• As many as 50% of all eligible businesses may not be claiming valuable relief against business rates.

Employees

• It should be possible to restructure employees' pay and benefits package in a cost and tax-efficient way, while at the same time ensuring that employees are properly remunerated and rewarded for their efforts – not just in terms of salary but via other benefits, such as flexible working and additional holidays.
  
  
• Consider offering pay rises in equity instead of cash using tax advantaged share scheme arrangements, such as the Enterprise Management Incentives (EMI).
  
  
• Defer bonuses by up to 9 months post year end - provided these amounts are paid within 9 months, the corporation tax deduction can be claimed in the year the provision is made.

Timely and electronic returns

• Making returns and paying tax on time will avoid penalties, surcharges and interest levies.
  
  
• Timely returns can offer certainty of tax payments scheduled in advance, but may also highlight where payments made on account, under Self Assessment for individuals or companies, may be excessive.
  
  
• Filing and paying tax online often gives 5 -10 additional days to make payments of tax.

Losses

• If the current year is loss making then submit returns as soon as possible to generate a repayment of tax.
  
  
• Consider the potential for carryback of losses in order to generate repayments of tax paid in earlier years.

VAT - cash flow planning

• There are means of actively managing cashflow from a VAT perspective by carefully considering the tax point at which any given transaction must be shown on the relevant VAT return. This is not aggressive planning, but needs to be implemented by a VAT specialist.
  
  
• If VAT returns are consistently generating repayments of tax, consider filing monthly returns if the administrative burden is bearable.

Green issues

• Relief at up to 150% of cost of decontamination is available for companies, particularly relevant to developers of brownfield sites.
  
  
• Consider environmentally friendly capital allowances (as above).

Is there likely to be any actual change forthcoming?

The weight of public opinion can never be ignored by a democratic Government and the various proposals being discussed at the moment, whilst not indicative of change in themselves, may force Alastair Darling's hand when it comes to the Pre-Budget Report. This is expected to be delivered in November or December in advance of the (normally) March annual Budget.

Francesca Lagerberg, Head of the National Tax Office at Grant Thornton says: "These are taxing times for businesses, and HM Revenue & Customs (HMRC) itself will undoubtedly also be feeling the pinch from falling taxable profits leading to a lower corporate tax take."

"However," she continues "despite the need to find funds, the continued success of smaller businesses is key to so many people, owing to the jobs, products and services they provide. Many owner managed businesses will be looking to the forthcoming PBR in anticipation that it may offer some assistance to them"

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