How can tax planning strategies improve cash flow

Salary sacrifice

There are lots of ways to make tax savings by offering salary sacrifice arrangements for your employees. More commonly this is used for making pension contributions, so an amount is deducted from the employee’s gross salary for their pension contribution and then the employer makes this into an employer contribution. By making the contribution this way the employee pays the contribution out of their gross salary so saves some tax and NIC, instead of making the contribution out of their net salary.  There are also employer NIC savings too using this method.

Salary sacrifice can also be used for other non-cash benefits (for example gym membership, dental plans, workplace nursery fees, parking etc.)  All of which have tax and NIC savings.

Finally, using salary sacrifice arrangements is also very helpful in attracting new employees as well as retaining your existing team members.

Trading losses

If a company makes a loss this can be utilised in many different ways - one of which is to carry the loss back to the previous tax year and offset it against the profits made in that year. This would result in a repayment of corporation tax that the company could claim. The loss carry-back provisions were extended and for accounting periods ending between 1 April 2021 and 31 March 2023, any losses falling into this period can be further carried back a further two years, meaning the loss carryback is for three years. This can lead to much-increased tax refunds due to the company which can significantly boost the company’s cash flow position.

There are also further loss relief provisions for companies that are part of a group so a thorough review of the tax position of the group needs to be undertaken to make sure the most efficient use of the losses is achieved.

Research & development

Tax reliefs for qualifying R&D expenditure have been around for many years and still remain an excellent way of reducing corporation tax liabilities for companies. For SMEs carrying out qualifying R&D activities, this can lead to an additional 130% deduction of qualifying P&L costs, which can be a significant tax saving.

If the R&D claim leads to a tax loss position for the year then this loss can be carried back (under the normal loss carryback provisions mentioned above) or surrendered to HMRC in exchange for a tax refund equivalent to 13% of the R&D loss element.

If you are carrying out R&D activities and not currently making a claim then please discuss this with us and we will be happy to give you some guidance and support around making a claim.

Time to pay arrangements

HMRC have in place provisions to allow companies to delay their tax payments, subject to prior agreement with them. So, if your business is struggling with cash flow and has exhausted all other options (bank funding, cash injection by directors etc.) then it is worth giving HMRC a call to discuss setting up a payment plan. In our experience, this has led to payments being spread over a period of up to six months which is a great help in these difficult times for some businesses.

Applying for a time to pay arrangement with HMRC also stops unwanted demands/calls from HMRC and also stops penalties from being issued, although interest charges do still accrue.

It is always better to apply for this and get HMRC’s agreement rather than just ignoring the demands.

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