Businesses accessing Government financial support during the ongoing Covid crisis should make end of year tax planning a priority.
That’s the view of the expert Swindon accountants’ team here at Optimum Professional Services. We believe limited company directors and – in particular – sole traders and partnerships should take steps between now and the end of the financial year in April to identify their likely tax exposure.
Grants such as the one-off £10,000 available for small businesses with premises, and the Self-Employment Income Support Scheme for sole traders and partners may result in larger than usual tax bills falling due next year. This could be at a time when cashflow is tight and all business support has ended.
We have a number of clients, for example, who received the small business grant and who also applied for one or more rounds of the SEISS payments, because their businesses had been adversely affected by Covid.
However, these grants all count as taxable income so must be added to their profits. If their year-end falls in the early months of the tax year – April, May, June for example – then they are always paying tax based largely on the previous year’s profits. Regardless of the year-end, all of these business support payments are added to the profits in the year and for some these amounts may be higher than the dip in profits from the impact of Covid.
Through a careful tax review and subsequent planning, the overall liability could be reduced, or as a minimum the client made aware of the future tax liabilities to leave plenty of time to save for the tax payments that will be due.
We have been advising our clients to put away 20 per cent of any Covid grants, if they can, to help cover their tax bill and also supporting them with tax planning to ensure they can meet their obligations.
If you would like some help or advice with end of year tax planning, please get in touch with Swindon accounts here at Optimum.