Maximising Your Tax Efficiency in Late 2024: Key Strategies for Small Businesses in England
As we approach the end of 2024, businesses across England are reflecting on a year of financial challenges and opportunities. Tax efficiency is a top priority for small businesses looking to protect their profits and plan for a stable future. Here’s a guide to key tax strategies that can help you maximise savings as the year closes.
1. Navigating Corporation Tax Rates
Since April 2023, the UK has maintained a two-tier corporation tax system. Businesses earning over £250,000 in profits pay a 25% rate, while smaller firms under £50,000 continue to enjoy the lower 19% rate. For businesses earning between these thresholds, the marginal rate increases as profits rise. If you’re in this bracket, it’s worth reviewing your expenses before the year ends. Investing in capital or making charitable donations could lower your taxable profits and reduce your overall tax burden.
2. Maximising R&D Tax Credits
Research and Development (R&D) tax credits remain one of the most valuable reliefs for small and medium-sized enterprises (SMEs). If your business has invested in innovation—whether through new processes, products, or software development—make sure you’re claiming every eligible penny. The relief could be worth up to 33p for every £1 spent on qualifying activities. Ensure all records of R&D activities and related expenses are up to date before the end of the tax year to maximise your claim.
3. Taking Advantage of Capital Allowances
The window for taking full advantage of the UK government’s ‘super deduction,’ which allows companies to deduct 130% of investment costs in qualifying plant and machinery, has now closed (March 2024). However, businesses can still benefit from the Annual Investment Allowance (AIA), set at £1 million, offering a full deduction on capital investments up to this amount. Consider making necessary purchases or upgrades before the tax year ends to reduce your taxable profits.
4. Reviewing Your Dividend Strategy
In April 2024, the tax-free dividend allowance dropped to £1,000, from £2,000 in 2023. If you’re a business owner who pays yourself via dividends, this could increase your tax burden. Before the year ends, review your dividend strategy and explore alternatives. You may want to balance dividends with a salary or increase pension contributions to lower your tax exposure, as pension contributions are still a highly tax-efficient way to extract profits from your business.
5. Ensure Making Tax Digital (MTD) Compliance
By now, all VAT-registered businesses should be fully compliant with the ‘Making Tax Digital’ (MTD) initiative. In 2024, additional changes came into effect under the Income Tax Self-Assessment (ITSA) requirements, lowering the threshold for inclusion to £30,000 turnover. If you haven’t already switched to a digital bookkeeping system, you may be subject to fines and penalties. Ensure your accounting software is compliant to avoid disruptions as we move into 2025.
6. Review Employee Benefits and Salary Sacrifice Schemes
With costs of living still rising, many small businesses are offering employees additional benefits through salary sacrifice schemes. These schemes, including pensions, childcare vouchers, and cycle-to-work programmes, allow employees to exchange part of their salary for non-cash benefits. This lowers their income tax, reduces National Insurance contributions for the business, and enhances employee satisfaction. Consider reviewing your benefit offerings before year-end to ensure you’re maximising savings and providing competitive perks.
7. Sustainability Initiatives: Tax Benefits of Going Green
Green initiatives continue to offer tax relief opportunities for businesses aiming to reduce their carbon footprint. If you’ve invested in energy-efficient technology or infrastructure, such as electric vehicle (EV) charging points or energy-saving equipment, check whether you’re eligible for Enhanced Capital Allowances (ECA) or other green tax reliefs. Sustainable investments not only benefit the environment but can also provide significant tax savings in the long term.
Conclusion: Closing Out 2024 with Smart Tax Planning
As 2024 draws to a close, now is the time to review your tax strategy and ensure you’re taking full advantage of available reliefs. By optimising your tax efficiency, making strategic investments, and working with a knowledgeable accountant, you can set your business up for a financially strong 2025. Don’t leave these decisions to the last minute—take action now to secure your tax savings.
Contact our expert accounting team today for tailored advice on optimising your tax planning as we move into the new year.