At the start of a new tax year, there are some considerations sole traders and partnerships should make when it comes to tax planning over the next 12 months.
Think about what you are aiming to achieve. Lower profits may mean a lower income tax bill but that isn’t necessarily the best result for the business. There are some reasons you may want to show a higher profit and pay more tax:
Capital expenditure
You should also be mindful of expenditure that will not affect your profits. Spending on matters that don’t happen until after the year-end or on products that are in stock at the year-end won’t reduce the current year profits. Meanwhile the purchase of land does not attract any income tax deductions.
Pension contributions
If you’re a higher rate taxpayer you may be eligible to make pension contributions to extend your Basic Rate band. We would recommend you speak to your adviser prior to making any contributions as there are a number of factors to be taken in to consideration. To impact the 2024/2025 tax return payments must be made in the your pension by 5 April 2025.
Basis period changes
Businesses will also need to consider how the incoming basis period changes could impact their tax bills as they will now be taxed on profits generated in a fiscal year and not those aligned to the business’s accounting year end and could lead to a larger than expected taxable profit for the year (and potentially future years). If you have not already spoken to your adviser about these changes we would recommend doing so.