We're getting close to the end of the tax year, a time when many sole traders have their financial year end. Many limited companies also close their books on 31st March to coincide with the tax year ending on 5th April. It's a good time to be thinking about your business and making plans for the end of the trading year, by looking at ways to influence the final profit
Graham, from Inca Accounting advises that planning for the year of a business is one of the most important times in the annual cycle.
The year end is the time when accounts are prepared and determine the profit or loss of the business and from that often the income of the business owner.
If tax mitigation is part of the strategy, then profit is lowered either by reduced income or higher costs.
You cannot simply decide to push income from one year into another, however, you might have been paid for a service but are yet to deliver it to your client. In such circumstances, it is possible to defer the income to a later reporting period for tax purposes.
Generally you will have more control over the purchase process and there are a number of opportunities to mitigate tax. Any expenditure you are planning in the next months and which are brought forward to the year end will benefit in tax for the current year. Be careful as not all expenditure will benefit the business in tax planning. As an example, purchasing stock will not affect profit and annual subscriptions will only have a marginal benefit.
IT or office equipment are generally good items to consider for year end purchases, always remembering not to buy for the sake of it, but simply to bring forward already planned expenditure.
Make a list of invoices you are expecting after the year end, but which relate to the current business year, it is possible to include them in the costs for the current year, again reducing profit.
On the reverse side, it may be necessary to reduce expenditure or dividends to increase profit or to ensure a director current account is not overdrawn. Remember that as a business owner, profits are often used by loan providers so if a house move is considered, then increased profits may be beneficial in the loan application.
As you can see, it is not always about reducing profit and therefore tax. To discuss your own specific circumstances, call Inca Accounting, Abingdon's "Most Loved Accountant 2011" on 01235 409098.
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