Mark Pryce, corporate tax partner with Azets, said that businesses with taxable profits of £1.5 million or more are required to pay forecast tax in advance of the year end, which now include accelerated QIPs (Quarterly Instalment Payments) starting just months into their financial year ends under two complex QIP regimes. The thresholds for inclusion in these regimes have remained static for 23 years and are well behind inflation rates.

“We are already seeing the new corporation tax rates of up to 25%, an increase of 31.58%, which are now affecting many Scottish businesses and time is running out in which to reduce the impact”, said Mr Pryce.

“The new measures, which came into effect on 1 April 2023, are compounded by shrinking allowances and advanced payments plus the arrival of new ‘Associated companies’ rules targeting group businesses.

“Group businesses include not only private equity backed companies where the overall PE investment structure will need to be assessed for additional potential associates, but also many family businesses.”

He added: “The Treasury will gain hundreds of millions of pounds from Scottish businesses but the cost to the economy of this new ‘Pull and Push’ tax policy will force many to take on additional borrowing to fund their tax bills, reduce staff wages and cut costs with innovative projects being the obvious targets.”

Mr Pryce is urging business owners to take advantage of the capital allowances regime by investing in their businesses and reducing the cash tax impact.

He explained: “The new expensing regime allows relief of 100% on certain new and unused plant but there are also opportunities to benefit from tax incentives by investing in qualifying assets. However, due to the complexity of some of these incentives it is easy to fall foul of HMRC and incur significant charges and penalties.”

“HMRC looks favourably on well laid out tax computations detailing the cost analysis with facts documenting and supporting claims, but a grim view is taken of unsubstantiated and arbitrary allocations and where the paperwork is not robust.

“Effective use of Annual Investment Allowances and the new capex expensing rules speeds up tax relief. The timing of spend and ensuring correct documentation is therefore crucial.”

Mr Pryce concluded: “2024 is shaping up to be an onerous tax year on a scale that most have never experienced and for which few are prepared.

“It is important that businesses avoid the urge to cut costs to pay tax and instead focus on investing to reduce tax and to prioritise their capital expenditure before their financial year ends. Any businesses concerned about the new tax regime should seek advice sooner rather than later.”