Limited Company Tax Review Check List 2024-25

• Incorporated businesses are taxed at corporation tax rates, currently between 19% and 25%, and any profits retained in the business will be subject to no additional tax charge. This final point illustrates one of the major advantages of running a profitable business inside a limited company structure. If you are self-employed you may want to consider the benefits of incorporating your business.
• Since April 2023, two rates of corporation tax apply. Smaller companies with profits up to £50,000 continue to pay corporation tax at 19%. Companies with profits in excess of £50,000 will be subject to a 25% rate. Firms with profits between £50,000 and £250,000 will be able to claim marginal relief.
• The marginal rates reduction from April 2023 will be reduced if companies have associated businesses. It is recommended that companies consider restructuring these associated businesses to avoid unnecessary increases in their corporation tax payments.
• Companies who are considering investments in plant or other qualifying assets in excess of £1m, can fully expense their investment against profits. This was facilitated by the new “fully expensing” rules introduced in the Spring Budget March 2023.
• Shareholders should review any plans in place to deal with succession, especially, smaller family businesses. This review should consider personal circumstances, changes in the company’s financial status, and changes in tax legislation.
• Shareholders should also review shareholder agreements to ensure they still reflect the intentions of signatories.
• Presently, shareholders’ dividends up to £1,000 can be drawn tax free. Would it be possible to issue shares to adult children and provide them with a small tax-free income?
• If all the shareholders of a small company hold the same class of shares, say ordinary shares, dividends will be paid based on the percentage held. This can be inconvenient if directors want to split dividends in a different proportion to equalise tax liabilities. One way to achieve this result is to convert existing shares into a number of different classes, say “A”, “B” shares etc., and in this way, shareholders can receive dividends in a more tax efficient manner.
• Review the active participation of director/shareholder family members. Is there an opportunity to employ a spouse or child; or provide taxable benefits?
• Directors who have overdrawn their loan accounts with the company should consider taking a dividend to clear the loan (if reserves are available) or otherwise repaying the loan within nine months of the trading year-end. In this way an additional (albeit temporary) 33.75% corporation tax charge can be avoided.
• Directors with semi-permanent deposits on loan to the company, may be advised to charge the company interest. Basic rate income taxpayers can receive up to £1,000 in interest tax free, higher rate taxpayers £500.
• The tax on-costs of running a company car fleet – class 1A National Insurance for instance – as well as the considerable tax implications for participating employees, may provide sufficient justification for a change in strategy. For example, could the company lend employees funds to buy their own cars and pay them a tax-free business mileage allowance to cover running costs?
• If projected profits forecast a temporary dip, or a loss in the short-term, could the company’s accounting period be extended to embrace the loss and average down the taxable profits for the preceding period?
• If projected profits are forecasting a downturn in profits, how will this affect director/shareholders’ remuneration in the coming months; will there be sufficient retained profits to maintain regular dividend payments?
• Be sure to consider the funding of corporation tax payments that will need to be made nine months and one day after the company’s accounting year-end date.