The end of the accounting period for your business is a key point for tax planning. You can save or delay tax by moving income and expenditure between accounting periods. For instance, advancing the acquisition of assets to just within your current accounting period will mean the Capital Allowances associated with those assets can be claimed earlier.
The cost of qualifying assets which fall within the Annual Investment Allowance (AIA) is given in full as a Capital Allowance in the year of purchase. The maximum amount that can be claimed under the AIA per year is £1 million, for expenditure incurred in the two years to 31 December 2020. There are complex rules for accounting periods that straddle the start and end of that two-year period.
The cost of constructing, renovating or converting a commercial building to be used by your business qualifies for a 2%pa structures and buildings allowance (SBA), which the Conservative Party promised to increase to 3% in future. Costs connected with residential accommodation don’t qualify for the SBA; neither do the costs of acquiring land or obtaining planning permission.
If your current year profits are looking very healthy, you may want to advance the payment of repairs, training costs, bonuses or pension contributions.
An accrued salary payment, such as a bonus voted before the year-end, is deductible for the period if it is actually paid within nine months after that year-end. However, a pension contribution must be paid within a company’s accounting period to be deductible for that period.