Learning from Financial Fair Play: How financial planning can reduce your SME tax bill

Tom Biggs, Associate at Wellers, a firm of small business accountants, discusses how businesses can reduce their tax bill using similar, legitimate tactics to those of football clubs
Tom Biggs

The most recent football transfer window saw clubs across the world make big money signings for new players. English Premier League clubs spent more than £2bn in total, which exceeded the record set in 2022’s summer transfer window.

This may come as a surprise as clubs can no longer spend as they please. Financial Fair Play (FFP) rules were introduced by the Union of European Football Associations (UEFA) to try and control the financial weight of the world's richest teams. FFP was created to ensure that clubs do not spend more than they earn, to prevent them from potentially falling into financial problems.

So, how is it then that despite onerous FFP rules, clubs such as Chelsea have been able to spend more than £1bn on new players, in three transfer windows?

What lessons can business owners learn from this and apply to their commercial endeavours?

How financial planning can help you

What similar methods can UK SMEs adopt?

The UK tax system is incredibly long (in fact, it’s so long that it’s more words than the average person will read in their lifetime). Whilst this means that it can be difficult to make sense of without the help of a professional, it also means that similar to FFP, there are specific reliefs, allowances, and breaks to capitalise on. These potentially reflect opportunities to manage your finances more effectively by reducing your tax liability.

Some of the key areas you should be speaking to your accountant about on these tax matters include:

1. Investment

You can reduce your business’s tax liability by re-investing profits in capital assets.

What are capital assets?

Capital assets are anything used in a company’s operations that will generate revenue in the long term (more than one year). For example, a new piece of machinery which would increase manufacturing output.

Using the Annual Investment Allowance (AIA) means that 100% of your qualifying expenditure, up to £1m of investment, can be deducted from your profits per year before Corporation Tax is applied. In addition, the newly introduced ‘full expensing’ rules introduced in the 2023 Spring budget means that you may be able to write off further capital expenditure over and above £1m if certain criteria are met.

2. Managing income

Managing your business’s income is another way to reduce the amount of tax you’ll pay. Spacing out business income so that some of it falls into the next financial year can be a way of potentially reducing your overall retained profit. This is particularly helpful if your business has had a bumper year, but the next financial year doesn’t look as profitable. In this case, delaying the sales of goods or services can help even out the books to be more tax-efficient in the long run.

This is similar to how football clubs space out payments for new players. For example, where they buy a player for £100m but space the payments out over four years (£25m per year) then the club looks more financially viable because the outgoings are spread.

3. Tax relief

There are tax reliefs available for innovation in science and technology (Research & Development tax relief), business rates relief for some types of commercial properties, Corporation Tax relief on various allowable business expenses, and savings to be made if your business has patented inventions through the Patent Box scheme, amongst several others.

The world of tax relief can be very complicated. First, you need to know what reliefs are available, and then you must work out if you qualify before you apply. It therefore pays to speak to a tax professional. As with FFP, effective planning is the key.

In conclusion

Whilst FFP regulations exist in their current form, football clubs will continue to make headlines for their big-money signings because they consistently and cleverly use financial planning tactics to reduce their exposure to the regulations.

But these aren’t tactics exclusive to big, wealth sports clubs. You just need to work with a good accountant and tax advisor to advise you on what you and your business can qualify for, and how much potential money can be saved.

Find out more about corporate tax planning through Wellers.

Written by
Tom Biggs
Associate at Wellers
November 29, 2023
Written by
November 29, 2023