So what’s changing that you need to be aware of?
As of 1 April 2023, corporation tax increased from 19% to 25%. (Remember, profit means the profit before you pay any dividends.) This increase represents a significant amount of additional cash that a business will need to find to meet its corporation tax liability.
How Management Information relates to your corporation tax bill
Ensuring that your business is prepared to meet its tax liabilities is just one of the ways that meaningful Management Information can help your business.
With a clear understanding of your business’ numbers through meaningful Management Information, you will have the knowledge you need to make well-informed decisions regarding your finances. And with a hefty tax bill on the horizon, you will need to be prepared for this ahead of the payment deadline because it could be all too easy to reach that point, not having budgeted for your liability.
Why your accountant doesn’t hold all the answers
Your tax accountant will have the specialist knowledge required to complete your corporation tax return, however they will not necessarily have in mind the entirety of your business’s finances.
In that same vein, the deadline for corporation tax falls before the filing deadline, and you would usually get a large bill just a few days or weeks before the deadline. So it can not only come as a shock due to the size of payment required, especially given this new increase and if it hasn’t been planned for well in advance, but also a shock due to the short notice, meaning you could be left scrambling to make it in a short space of time.
Someone with experience within your finance function with access to this Management Information would be best placed to have the insight and foresight to plan ahead and mitigate these issues.
Using Management Information to budget for your tax bill
Clear and concise management accounts are vital in order to be fully prepared for your tax obligations. By gaining a comprehensive understanding of your estimated tax liability well in advance, you’ll be able to set aside the necessary funds, without negatively impacting your business’s cashflow.
What’s more, the tax basis period for corporation tax is set to be reformed from 2024, with a transition period in the lead up. This means that any businesses currently reporting on their accounting year will need to align to the tax year from 2024.
During the 2023/24 transition period, a business will pay corporation tax on profits incurred in the 12 months from the end of the basis period ending in 2022/23, as well as tax on profits incurred during any transition period up to 5th April 2024 – so there could be an an even larger bill to pay. All of which makes Management Information and the ability to plan ahead for your business’s taxes even more important.
Learn more about how our Finance Managers and Financial Controllers would be the perfect complement to your accountant and provide you with Management Information that will help you future plan for your business here.