As the manager or administrator of a corporation, you have the inevitable duty to make your financial contribution to the government at the end of each fiscal year. In some cases, the levies are straightforward and easy to calculate – in other cases, though, corporate tax laws can get quite complicated. There are, however, several things you can do to minimise your burden when the tax collector comes knocking – and this is where corporate tax planning comes in. Here’s what you should know: corporate tax planning 101 and its benefits for your enterprise.

How corporate tax in the UK works

Corporate tax – unlike other forms of taxation – is not based on income, but on profits. This means the corporation is only taxed for the amount left over once you deduct all expenses and costs from the income you receive. It’s exactly this definition of corporate tax that lends itself to tax planning and gives you the ability to lessen your burden at the end of the year.

The value of tax planning

Tax planning is based on a good understanding of what exactly you are paying taxes on: your income, your expenses, and the difference between them. It’s also based on the knowledge that taxes are calculated only once a year, at the end of the fiscal year. By delaying income and forwarding costs, you are basically reducing your current profit, holding off for the next fiscal year, and thereby lowering your taxable gains and financial burden.

For example, by holding off the collection of accounts receivables for one month at the end of the fiscal year, the collection will be written in the books only in the next fiscal year. Say someone owes you payment for a product sold – by collecting this payment only at the start of the next fiscal year, the amount cannot be written as income for this year.

Another way of planning your corporate taxes is by forwarding your expenses and paying amounts you owe before the due date. For example, you may want to pay salaries or bonuses in advance so that the expenses are written down in the books this year and not in the next fiscal year.

By decreasing your income (by allowing your debtors to pay a little later) and increasing your expenses (by paying future costs now), you reduce your taxable profit, and thereby reduce your final tax bill. This can be a great way to secure better cashflow at the start of the fiscal year, allowing you to invest money otherwise given to the government into new ventures and business expansion.

The laws of the land are there for your benefit – and corporate taxation laws are no different. This is why it’s important to take advantage of the proper corporate tax planning for your business at all times.

 

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