The Corporation Tax Landscape Entering 2025
Corporation tax has been at 25% for companies with profits exceeding £250,000 since April 2023. The small profits rate of 19% continues to apply to companies with profits of £50,000 or below, with marginal relief tapering the effective rate for profits between £50,000 and £250,000. For most venture-backed growth companies operating at a loss, the corporation tax rate itself is not the immediate priority, but the interaction with R&D reliefs, full expensing and the tax treatment of losses makes year-end planning equally important.
The Autumn Budget of 30 October 2024 did not change corporation tax rates, which provides some planning certainty. However, the increase in employer NIC from April 2025 significantly increases the cost of employment, and founders with personal tax planning to do face CGT rate increases that make pre-April timing decisions genuinely material.
Timing Capital Expenditure to Maximise Full Expensing
Full expensing, made permanent in the Autumn Statement 2023, allows companies to deduct 100% of the cost of qualifying plant and machinery in the period of purchase. For a company spending £500,000 on qualifying equipment, full expensing generates a corporation tax deduction of £500,000 in that period, rather than the 18% writing-down allowance that would otherwise apply over many years.
The tax planning implication is significant: pull qualifying capital expenditure into the current accounting period where possible. Equipment ordered and delivered before the year-end qualifies in the current period. Equipment ordered before but delivered after the year-end typically qualifies in the following period. Where large purchases are borderline (an asset due for delivery in April 2025 that could be received in March 2025), it is worth the logistics effort to bring the delivery forward.
Full expensing applies to new and unused plant and machinery only. It does not apply to used assets, cars, or assets acquired for leasing. The annual investment allowance (AIA) of £1 million per year provides a similar first-year deduction for used plant and machinery and remains available alongside full expensing. For companies with significant capex programmes, the combined effect of full expensing and the AIA can accelerate substantial tax deductions into the current year.
R&D Claim Preparation
The R&D tax relief landscape changed substantially from April 2024, when the SME and RDEC schemes were merged into a single merged scheme for most claimants. Under the merged scheme, qualifying R&D expenditure generates a taxable credit at 20% of qualifying costs. The net benefit after corporation tax at 25% is approximately 15% of qualifying R&D expenditure (20% credit less 25% tax on the credit).
The R&SCI (Research and Development Intensive) relief for loss-making SMEs that are qualifying intensive remains available at a higher rate, with a 27% credit rate for companies spending more than 30% of total expenditure on R&D. This is the highest rate of relief available in the merged scheme and is specifically designed to support genuinely research-intensive businesses.
Year-end planning for R&D claims involves several distinct actions:
- Identify all qualifying projects. R&D for tax purposes requires seeking an advance or appreciable improvement in science or technology, involving a resolution of scientific or technological uncertainty. The definition is broader than most founders assume and extends to software development, algorithm development, and novel fintech product development in many cases.
- Prepare the technical narrative. HMRC's Additional Information Form (AIF), mandatory since August 2023, requires a project-by-project technical description. Preparing this takes time and should not be left until the tax return deadline. Begin the narrative documentation before the year-end closes.
- Reconcile qualifying costs to payroll. Staff costs are typically the largest component of an R&D claim. The reconciliation between qualifying staff time and the payroll records must be clean and supportable. Contemporaneous time records are far more defensible than retrospective estimates.
- Check for PAYE cap exposure. For SME claims, the payable credit is capped at three times the company's total PAYE and NIC liability for the year, plus £20,000. Companies with small UK payrolls but significant R&D activity (including overseas subcontractor costs) may face a binding cap. Understand your position before filing.
Group Loss Relief and Inter-Company Planning
Many scaling businesses operate through a group structure with multiple subsidiaries. Where some entities are loss-making and others are profitable, group relief allows trading losses to be surrendered from the loss-making company to the profitable company, reducing the latter's corporation tax liability. Group relief requires 75% common ownership and is available in the current period (no carry-back or carry-forward mechanism for group relief).
Before the year-end, review the profit and loss position of each group entity. If a profitable subsidiary has taxable profits of £200,000 and a sister company has trading losses of £150,000, surrendering £150,000 of losses saves £37,500 of corporation tax at 25%. The mechanics require a formal surrender notice to be filed, but there is no restriction on the amount that can be surrendered (up to the claimant's profits) and no payment needs to be made by the claimant to the surrendering company (though for commercial reasons most groups make a payment equivalent to the tax saved).
Employee Remuneration Timing
The employer NIC rate rises from 13.8% to 15.0% from 6 April 2025, and the secondary threshold falls from £9,100 to £5,000 per annum. These two changes together mean that employer NIC cost per employee increases substantially for most payrolls.
The practical implication for year-end remuneration planning is to accelerate into 2024/25 any discretionary remuneration that can legitimately be paid before 6 April 2025. Bonuses that would normally be paid in April or May 2025 can often be brought forward to March 2025 with minimal disruption, saving employer NIC at the rate difference. On a bonus pool of £500,000, the saving from paying before versus after 6 April 2025 is approximately £6,000 in direct NIC terms (1.2% rate increase), plus an additional saving from the lower secondary threshold applying.
For salary sacrifice arrangements linked to pension contributions, employer NIC savings can also be crystallised on the pre-April 2025 NIC rate by ensuring any scheme changes are implemented before the rate change date.
"The Autumn Budget 2024 represents the largest increase in employer cost of employment in over a decade. Planning the timing of bonuses, salary increases and NIC-bearing payments before April 2025 is not tax avoidance; it is elementary payroll planning that every well-run finance function should be doing."
Specific Issues for Crypto Businesses
Businesses holding cryptoassets on their own balance sheet face specific year-end tax considerations that differ from conventional financial assets.
Timing of disposals. Cryptoasset disposals by companies are treated as chargeable gains or allowable losses for corporation tax purposes. Unlike individuals, companies do not have an annual exempt amount. Losses crystallised before the year-end can be offset against gains in the same period, potentially generating a tax saving if the company has other chargeable gains (from investment disposals, for example). Gains deferred past the year-end are taxed in the following period. If the company expects its profit position to change significantly in the next period (for example, due to significant R&D claims), timing disposals to fall in the year with the most favourable effective tax rate may be material.
Valuation of cryptoassets held at year-end. For balance sheet purposes, cryptoassets held as trading stock are valued at the lower of cost and net realisable value under FRS 102. Cryptoassets held as investments are carried at fair value through profit and loss if designated as such. The valuation method must be consistent and documented. Where crypto markets have moved significantly in the months approaching the year-end (as they did through the second half of 2024), the year-end valuation can have a material P&L impact and should be prepared with reference to a defensible price source.
Token grants and employment income. Where the business has issued tokens to employees or contractors, the tax treatment depends on whether those tokens are treated as employment income (subject to PAYE and NIC at grant if readily convertible assets) or as separate capital transactions. The technical analysis of each arrangement must be completed before the year-end, and any PAYE obligations must be settled before the year-end payroll close to avoid penalties.
October 2024 Budget Changes: What to Act On Now
Several of the Autumn Budget 2024 measures have a pre-April 2025 planning window that is narrowing fast.
Dividend Planning
For founders and shareholders taking income from their businesses, the choice between salary and dividends involves a complex interaction of income tax, NIC, and corporation tax. The Autumn Budget did not change dividend tax rates (basic rate 8.75%, higher rate 33.75%, additional rate 39.35%), but the NIC changes make the dividend route relatively more attractive for 2025/26 compared to salary above the new secondary threshold of £5,000.
For founder-shareholders with discretion over their own remuneration, consideration should be given to the following before the year-end: whether to draw additional dividends in 2024/25 (while the current income tax bands and rates apply), whether to set salary levels for 2025/26 to optimise the Employment Allowance and the new secondary NIC threshold, and whether pension contributions should be made before the year-end to utilise the annual allowance.
Before the Accounts Are Finalised
The year-end tax position is determined by the statutory accounts, which typically take several months to prepare after the accounting period ends. However, there are several areas where actions taken before the year-end close will simplify the accounts preparation and reduce audit risk:
- Impairment review of intangibles. Where the business has capitalised development costs or acquired intangibles, review for indicators of impairment before the year-end. Impairment charges recognised in the accounts may create deferred tax assets (if the impairment is not yet deductible for tax) or generate allowable losses on disposal. Understanding the position before the accounts close avoids late adjustments.
- Share-based payment charges. IFRS 2 / FRS 102 require a charge through the income statement for options granted under EMI or unapproved schemes. The charge must be calculated using the Black-Scholes or binomial model at the grant date. If options have been granted during the year and the accounting has not been updated, resolve this before the accounts are prepared rather than during the audit.
- Provisions review. Provisions must meet strict criteria under accounting standards: a present obligation as a result of a past event, probable that an outflow will be required, and the amount can be reliably estimated. Year-end is the time to systematically review all potential provisions (onerous contracts, legal claims, restructuring) against these criteria. Provisions that do not meet the criteria must be reversed; those that do should be recognised before the year-end to capture the tax deduction in the correct period where possible.
Key Takeaways
- Pull qualifying capital expenditure into the current accounting period to maximise full expensing at 100%, rather than allowing it to roll into the next period as a 18% writing-down allowance.
- Begin R&D technical narrative documentation now. The HMRC Additional Information Form is mandatory and requires substantive project-level descriptions that take time to prepare properly.
- Accelerate discretionary bonuses to before 6 April 2025 to take advantage of the current 13.8% employer NIC rate before it rises to 15%.
- BADR rate rises from 10% to 14% from April 2025. For founders considering exits or qualifying disposals, completing before April 2025 may save 4 percentage points of CGT on qualifying gains.
- Crypto businesses should document year-end asset valuations with reference to defensible price sources and confirm the tax treatment of any token grants to employees made during the year.
- Group companies should review inter-entity loss surrender opportunities before the year-end. Trading losses in one entity can reduce corporation tax in a profitable sister company if the group relief claim is filed on time.
- Review provisions, impairment indicators and share-based payment charges before the accounts close. Late adjustments discovered during audit are more expensive and disruptive than pre-year-end housekeeping.
