15 effective and legal ways to reduce Corporation Tax bill.
Ever so often, we have clients who want to explore ways to reduce their corporation tax bill, and their tax liabilities in order to be more tax effective as a corporation. You don’t have to be a global force like Amazon to structure effective tax planning and reduce your taxable corporation tax at the end of the year. Now more than ever, in times when cash flows have been squeezed, we are frequently advising clients on ways that will allow them to pay the least amount of corporation tax as possible.
Each of the tax plannings are perfectly legal and will allow you not to pay any more than your legal tax liabilities.
Here are our top 15 tips to reducing Corporation Tax:
1. Claim R&D tax relief
This allows you to reduce your tax bill in response to funds that you have spent on developing innovative ideas, software, technical expertise etc.
Is your business making sure that it doesn’t miss out on Government backed tax reliefs for innovation? If your business pays technical staff to solve technical problems, perhaps developing new or improved processes, products or software, then it is likely that you could be reducing your corporation tax by around £25,000 for every £100,000 spent on innovating.
Tax savings may also be available for Research and Development allowances (RDAs), where you’ve paid for research facilities or equipment. These reliefs are extremely generous, and our Radius team have a simple and proven record (100% success record with R&D tax relief applications submitted) in making these claims for our clients. To test your eligibility to claim, why not download our eligibility checklist. 11 simple questions, and ten minutes of your time to determine whether you could be eligible to claim.
2. Can you claim Patent Box tax relief?
Does your business make profits derived from patented inventions? You could look to claim Patent Box tax relief and pay an effective rate of 10% corporation tax on those profits.
3. Don’t miss deadlines
Companies normally have two years from the end of an accounting period to claim certain tax reliefs, such as R&D tax reliefs, capital allowances and patent box relief. Companies should look to make sure they have claimed their full entitlement to these reliefs before it is too late. See full blog.
4. Invest in plant & machinery
Companies can benefit from the “Annual Investment Allowance” (AIA) which allows a business to claim immediate tax relief on purchases of certain business assets up to a specified limit. The AIA was increased to £1m on 1 January 2019, meaning business investing in qualifying items are able to write off a significant amount of the investment against their profits.
5. Capital allowances on Property
Companies can claim a 2% straight line writing down allowance on new commercial building expenditure from 29 October 2018 (rising to 3% for expenditure from April 2020).
For buildings acquired prior to this, companies should review the expenditure incurred to determine whether any qualifies for capital allowances in its own right. The claim does not have to be made when the costs were incurred, therefore, it is possible in the majority of situations to claim missed allowances going back several years, often to when a property was originally acquired.
6. Don’t forget to claim all business expenses
It may sound obvious, but don’t overlook any expenses from your accounting records. We often find Directors incur expenses themselves on behalf of the business but fail to claim them back through the accounting records.
7. Directors Salaries
Company owners should look to use their personal allowance effectively, by drawing a tax efficient combination of salary and dividends from the business.
8. Pension contributions
Companies can normally obtain a deduction from their profits for pension contributions paid into pension schemes on behalf of employees or directors. Payments must be made before the end of the accounting period to obtain relief. This is a quite straightforward way to reduce Corporation Tax, although consideration should also be given to the individuals’ personal tax position before making contributions.
9. Claiming business mileage
If they use their personal car for business, any employee can claim expenses from the company on a tax-free basis, using statutory rates per mile of;
Up to 10,000 miles per annum @ 45p
Above 10,000 miles at 25p
10. Work from home allowance
Where homeworking takes place, HMRC will allow you to claim a portion of your home expenses to meet the additional costs of heating and lighting the work area. There might also be increased charges for internet access, insurance or telephone calls etc. As a starting point, a £4 per week payment from the employer is acceptable. See full blog.
11. Creative industries relief
For the video games and other creative industries, there are several generous tax reliefs available. Video Games Tax Relief (VGR) which is one of eight tax reliefs which apply to certain qualifying companies in the creative industries, allowing them to benefit from reduced rates of Corporation Tax. Video Games Tax Relief operates in a similar way to the SME R&D relief in that it provides an additional deduction against taxable profits. See full blog.
12. Share schemes
Companies can often obtain a corporation tax deduction when offering share schemes to their employees, which can also be a good way to incentivise and reward them. There are many schemes available, so advice is essential to ensure you use the best one for your business.
Make sure that your business is claiming all available loss reliefs. There are different types of loss that a company can suffer, but in certain circumstances they can be carried back to a previous year (to generate a tax refund), carried forward against future profits or even surrendered to a fellow group company.
14. Subscriptions and training costs
Providing they relate to the activity of the company, training and subscriptions costs can be paid for by the company without the benefitting employee suffering Income Tax. The costs can be tax deductible for the company, resulting in the tax free development of your staff
15. Paying for a Staff Party
Costs of up to £150 per head to pay for an annual staff party (such as a staff Christmas Party) can be tax free for the employees and tax deductible for the company. This can be a way of rewarding staff in a tax efficient manner, and building goodwill across your workforce.
If you would like to learn more about any of the basic tips above and how your business could save corporation tax, then why not download your free copy of our 2020 tax saving guide or drop us a line today to see how we can help your business thrive.