Efficient ways to reduce corporation tax

Need a tax break? Want to reduce your corporation tax by availing certain tax reliefs off your corporation tax bill? If yes, look no further! After thorough research, we have put together a list of the most effective ways in which you can lower the corporation tax from your company profits. Even small business owners can also benefit from this.

Before we plunge into the key methods, let's understand what a corporation tax is.

What is a Corporation Tax?

Corporation Tax simply means the tax levied on companies' profits. It is basically a tax payable against the profits earned by the company which all the limited companies must pay.

There are no hard and fast rules for lowering business expenses by reducing corporation tax. Some avail more corporation tax, and some less. You can go through the checklist given below and decide for yourself which ones to avail of from the list: 

I. Claim business expenses

If your business frequently incurs expenses, don't forget to claim them from the bookkeeping records. Many company owners or directors seem to overlook these business expenses and, as a consequence, fail to reduce corporation tax.

II. Claim Patent Box relief

Want your business to earn some profits from patents? Don't fail to claim your Patent Box tax relief. Claiming this type of tax relief allows you to pay only 10% corporation tax on those profits.

III. Claim R&D tax relief

Now you can reduce your corporation tax: bill by £25,000 for every £100,000 amount spent on innovations (for paying technicians to develop new products, processes, services or solve technical issues). The Research and Development allowances (RDAs) also facilitate business owners by providing some good tax saving options.

IV. Property capital allowances

Companies can claim a meagre percentage (For instance: 2%) of property capital allowances on new commercial property expenditure incurred. Companies that have taken any office buildings, which were occupied earlier, can review the expenses incurred for renovation or re-established to determine whether some capital allowances can be availed. You don't have to claim it while the expenses are being incurred, but it can be done later after the total expenditure is evaluated.

V. Investment in plant & machinery

Have you heard of Annual Investment Allowance (AIA)? AIA facilitates businesses by allowing them to claim tax relief on an immediate basis on certain purchases incurred for business assets. Don't fail to get this allowance if in case the expenditure incurred by your business qualifies.

VI. Work-From-Home personal allowance

For all the remote-based employees or workers, HMRC allows you to claim a decent portion of your home-incurred expenses. Since the internet, telephone, light, heating, and other such extra usages may increase your monthly bills by some folds, you can definitely claim a certain amount from HMRC as compensation.

VII. Claim Loss tax relief

As a business owner, do not fail to claim the losses incurred by your company from the available loss reliefs. A company can suffer from several types of losses. And, in certain situations, losses can be carried to a previous year or forward against profits in future, or even given to a group based company.

VIII. Pension Contributions

One simple way to reduce corporation tax is by contributing a certain amount from the profits towards the pension plan under the pension schemes as an employee or a director. This will help you tremendously in saving some funds by lowering the amount of the corporation tax bill.

IX. Director's salary

Business owners draw a combination of salary and dividends from the company's accounts by employing a tax-efficient combination, hence, making effective use of their personal allowance.  As a director, this is something you must look to use in your favour.

X. Claim business mileage

Employees can claim certain expenses on a tax-free basis if their companies use their personal cars for business purposes. All this can be done using statutory rates per mile:

• @45p up to 10,000 miles

• @25p above 10,000 miles

XI. Creative Industry tax relief

There are many generous tax reliefs for the creative and video gaming industries. Video Games Tax Relief (VGR) provides a reduced rate of Corporation Tax to several qualifying companies in the creative media industry. Furthermore, VGR offers extra deductions against profits (taxable of course) like SME R&D relief.

XII. Paying for Office Staff Party

Certain funds (£150 per head roughly) are dedicated for annual staff parties in the company like Xmas or Halloween parties. The cost to hold the party can be made tax-free for the employees and tax-deductible for the company. This way of rewarding the staff helps build goodwill among them.

XIII. Training & Subscription Cost

The company bears the cost for the employee's training and subscription and pays the tax, given that the activities are related to the company. This prevents the employees from suffering Income Tax.

XIV. Miss Deadlines: Companies

Companies have two years of time to claim a variety of tax reliefs such as capital allowances, R&D tax reliefs, and patent box relief, which must be claimed before time runs out and they can't avail anything. The time to claim such tax reliefs starts from the end of the accounting period.

XV. Scheme Sharing

Companies often share schemes with their fellow employees in a way to reward them and keep them motivated for the long haul. During this process, these companies can benefit from a substantial deduction from corporation tax. This is one of those little known ways in which a company tries to reduce the corporation tax.

Conclusion:

For all the qualifying companies and their business purposes or tax purposes, the simple methods provided above on the list will help you in reducing your corporation tax rate by claiming corporation tax reliefs.

I hope this informative read was helpful in making you understand and learn how to save money from your business expense by trying to reduce your corporation tax. You can get in touch with online accountants.