2020 has been an unusual year for tax, so how should businesses plan for 2021?
As we draw to the end of a year with no Autumn Budget statement, our thoughts are turning to what might be said in a March Budget. With this in mind are there any planning aspects that should be considered?
As we look ahead to the Spring 2021 Budget, business should consider:
1. The timing of capital expenditure
Businesses should consider the timing of capital expenditure to ensure claims to capital allowances are being maximised. The Annual Investment Allowance on the first £1million of spend in a 12-month period has been extended until 31 December 2021. Therefore it is important to ensure timing of expenditure falls into the right accounting period where the year end is not 31 December. Otherwise it can take many years to get the full tax relief.
2. Commercial property reliefs
If commercial property is built or acquired, consider whether there are any other reliefs available. These could be structural buildings allowances or integral fixtures so that the maximum tax relief on purchase is obtained.
3. Capital allowances on existing properties
It is worth reviewing all existing properties to see if a claim has been made previously for any embedded capital allowances, or whether there is scope to make a claim now to unlock the available tax relief.
4. Pension contributions
Have pension contributions been maximised to ensure current year allowances are utilised and any brought forward unused relief from earlier years is not being lost? It is advisable to consider this ahead of 5 April 2021 in case allowances or reliefs are reduced in the Spring Budget.
5. R&D reliefs
Have R&D reliefs been maximised for your company? R&D can provide valuable cash relief for qualifying expenditure through enhanced SME relief, providing a cash rebate equivalent to 33.3% of the amount spent.
Alternatively for large companies, or for R&D that has been funded, an RDEC claim could be made, providing a cash rebate of 12%. As claims have to be made within two years of the end of the accounting period, any business which has not made a claim for periods ending on or after 31 December 2018, should act now to avoid losing what could be a valuable relief.
6. Trading losses
Many businesses will experience trading losses this year. Is there scope to carry such losses back to reduce any imminent tax payments from earlier years or recover some of the tax already paid? A claim may be possible even if the period end has not been reached or final accounts are not available.
By Mark Tibbert, Partner