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Survive the credit crunch!


Cash is king for any business, not least in the current economic climate. Saving tax at every opportunity will play an important part in maintaining cash reserves. We consider below some of the tax planning considerations that can have an immediate impact on cash flow. 

If you are a sole trader or partnership business and you believe that your profits this year will be lower than your accounts that finished in the tax year to 5th April 2008, please let us know (if you haven’t already). It may be possible to reduce your payments on account due at the end of January and save you some tax. Care is needed to avoid unnecessary interest charges or even penalties.


Under the current climate the value of goodwill, intellectual property, stock and work in progress may need to be written down in value. Such write downs, and possible bad debt write offs will all serve to reduce profits. Whether a sole trader, partnership, or a limited company there may be a case to consider changing the business year end to help reduce tax liabilities quicker or carry back trading losses to reclaim tax paid in the past.



The recent pre-budget report has increased the use of losses for businesses by allowing up to £50,000 of trading losses to be carried back a further 2 years on top of the current 1 year carry back.

Large companies making quarterly instalments should regularly review their payments as circumstances change.

For small businesses struggling to collect debts it may be worth considering changing to the cash accounting scheme for VAT purposes. If annual turnover is less than £1.35 million then a business may use the scheme. Under the scheme the business will not be liable for VAT on invoices it raises, until it receives the cash. This can be a significant cash flow advantage for some businesses. As there are a number of conditions applicable and it may not suit every business, please talk to us first.

It may be worth considering whether the current business structure is the most suitable for the business right now. It may be possible to change the business structure in order to save tax, or perhaps increase tax repayments from HM Revenue & Customs if business losses are likely to arise.

There are a number of ways to extract profits from the business, including dividends. Dividends are fairly tax efficient and can be paid to family shareholders not contributing significantly to the business. Care is needed to ensure that the company has sufficient profits to pay the dividends and the appropriate paperwork is in place.

If the company has become worthless then it may be possible to make a claim to HM Revenue & Customs that your shares in the company are not worth anything. If they accept the claim, then you may be able to claim the capital loss against other gains. If you have loaned monies to the company that are now irrecoverable then it may again be possible to claim a capital loss. However there are a number of conditions that need to be met.

If you subscribed for the shares with cash and they are now worthless then it may be possible to set that loss against your other income. Care is required to ensure that the appropriate conditions are met and the possible tax repayment is maximised.

Although not a tax saving idea the recent pre-budget included the launch of HM Revenue & Customs’ “Business Payment Support Service”, which can be contacted 7 days a week to discuss tax payment problems. On top of this 2009 will see other Government backed financial measures being launched, aimed at helping small and medium businesses.

As everyone’s circumstances are different, and the above list only covers a few ideas, we offer an “anti-recession review”. If you are interested then please do not hesitate to contact us.