6 ways business tax planning can improve cash flow

Recent economic challenges have led many companies to focus their attention on ways to improve cash flow.

Effective business tax planning can reduce current and future tax liabilities, accelerate tax reliefs and, in some circumstances, generate corporation tax repayments, improving working capital and business cash flow.

6 ways effective Business tax planning can improve cash flow

1. Capital Allowances

Capital Allowances are often overlooked but can be a valuable tool to reduce taxable profits, generating deductions of up to 100% of the qualifying capital expenditure incurred.

If you have incurred significant expenditure on property renovations, a review of the expenditure should be undertaken to maximise any Capital Allowances available.

2. Research and Development (R&D)

Companies involved in a qualifying R&D activity may claim additional tax relief on certain costs incurred directly in the process or, in certain circumstances, create a tax repayment. The relief available depends on the company’s circumstances and the nature of its qualifying expenditure.

The administrative requirement for R&D claims has greatly increased over the past few years, this may require a claim notification to be made within 6 months of the end of the relevant accounting period, along with submission of an Additional Information Form.

If you have undertaken activities which you think may qualify for R&D tax relief, a review of any R&D claim should be made as soon as possible to ensure any potential claim is not missed.

3. Quarterly Instalment Payments (QIP)

On 1 April 2023, the rules surrounding companies within the QIP regime changed, or rather reverted back to the original rules before the 1 April 2015 change. As a result, more ‘associated companies’ were included in the calculation to determine whether a company fell within the QIP regime resulting in more companies paying their Corporation Tax in QIPs.

A review of the required QIPs should be regularly undertaken to avoid overpayments, interest charges and improve tax payment forecasting.

If the company is part of a group, utilisation and allocation of Capital Allowances and losses is important to prevent falling within the QIP regime. Timing of other considerations such as pension contributions and bonuses may also have a big impact on whether a company falls within the QIP regime or not.

4. Foreign Tax Credits (FTC)

Companies that have undertaken operations overseas may have suffered withholding tax (WHT) on receipts. It may be possible to claim tax relief against UK CT on a pound-for-pound basis for any WHT which has been suffered, potentially generating a substantial repayment. A claim for FTC can be made up to 4 years after the end of the accounting period in which the WHT was suffered.

If the FTC is suffered from a foreign branch, the recent Foreign Branch Election Exemption will likely impact future FTC claims.

5. Losses

Current market conditions may have resulted in previously profitable companies making losses. If a company has been profitable and paid CT in the last 12 months, there is potential to utilise these current year losses against the prior year’s profits and generate a tax repayment.

Liaising with your tax advisors as early as possible may allow you to access these repayments at an earlier stage. This can be of great benefit to companies where Time To Pay arrangements are in place for tax liabilities currently overdue.

6. VAT Review and Planning

Input and Output VAT will likely have a significant impact on cash flow for all businesses. A VAT review can be a simple but effective way to improve cash flow by ensuring VAT is being accounted for correctly and that all available input tax recovery is being secured.

Reviews commonly identify additional VAT recovery on overheads, property expenditure, international transactions, and partially exempt activities, while also uncovering historic claims that can generate VAT refunds from HMRC. Optimising VAT accounting methods, group structures, and reliefs can reduce irrecoverable VAT costs and improve working capital across the business. They can also highlight risks before they crystallise into assessments, interest or penalties, helping to avoid unexpected costs. In some cases, relatively small changes to VAT accounting procedures can improve working capital and reduce irrecoverable VAT costs across the business.

How AAB Can Help

Need help with effective business tax planning? Our Comprehensive Business Tax Services are here to help you achieve the best possible outcome.

Get in touch with Gregor McCallan, or your usual AAB contact.