Companies are looking for ways to reduce their corporation tax liabilities now more than ever, and we frequently advise clients on how to pay the least amount of tax possible. There are numerous basic strategies that can be used because many people do not want to pay more than they have to.
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Here are our top 15 tips for lowering corporate tax:
1. Apply for R&D tax credits
Is your company ensuring that it does not miss out on government-backed tax breaks for innovation?
If your company pays technical staff to solve technical problems, such as developing new or improved processes, products, or software, you could save around £25,000 in corporation tax for every £100,000 spent on innovating. Tax breaks may also be available for R&D allowances (RDAs), where you paid for research facilities or equipment.
These reliefs are extremely generous, and our Radius team has a simple and proven track record of making these claims for our clients (100 percent success rate with R&D tax relief applications submitted). Download our eligibility checklist to see if you are eligible to make a claim. 11 simple questions and ten minutes of your time are required to determine whether you are eligible to file a claim.
You can also use our free and interactive R&D tax relief calculator to determine how much R&D tax relief your company can claim.
2. Is it possible to claim Patent Box tax relief?
Is your company profitable as a result of patented inventions? You could seek Patent Box tax relief and pay an effective corporate tax rate of 10% on those profits.
3. Meet all deadlines.
Companies typically have two years from the end of an accounting period to claim R&D tax reliefs, capital allowances, and patent box relief. Companies should ensure that they have claimed all of their entitlements to these reliefs before it is too late. See the entire blog.
4. Purchase plant and machinery
Companies can benefit from the “Annual Investment Allowance” (AIA), which allows them to claim immediate tax relief on certain business asset purchases up to a certain limit. The AIA was increased to £1m on January 1, 2019, allowing businesses that invest in qualifying items to deduct a significant portion of their investment from their profits.
5. Property capital allowances
From October 29, 2018, businesses can claim a 2% straight line writing down allowance on new commercial building expenditure (rising to 3 percent for expenditure from April 2020).
Prior to this, companies should review their expenditures to see if any of them qualify for capital allowances in their own right. Because the claim does not have to be made at the time the costs were incurred, it is possible in the majority of cases to claim missed allowances dating back several years, often to when a property was first purchased.
6. Remember to claim all business expenses.
It may seem obvious, but do not leave any expenses out of your accounting records. We frequently see Directors incur expenses on behalf of the company but fail to claim them through the accounting records.
7. Salary of Directors
Company owners should look for ways to maximise their personal allowance by combining salary and dividends from the business.
8.Contributions to pensions
Companies can usually deduct pension contributions paid into pension schemes on behalf of employees or directors from their profits. To qualify for relief, payments must be made before the end of the accounting period. This is a straightforward way to reduce Corporation Tax, but before making contributions, individuals should consider their personal tax situation.
9. Business mileage reimbursement
If they use their personal car for business purposes, any employee can claim tax-free expenses from the company, based on statutory rates per mile.
- Up to 10,000 miles per year at 45p
- More than 10,000 miles at 25p
10. Allowance for working from home
HMRC will allow you to claim a portion of your home expenses to cover the additional costs of heating and lighting the work area where homeworking occurs. There may also be increased charges for internet access, insurance, or phone calls, among other things. As a starting point, an employer payment of £4 per week is acceptable.
11. Relief for the creative industries
There are several generous tax breaks available for video game developers and other creative industries. Video Games Tax Relief (VGR) is one of eight tax breaks available to qualifying companies in the creative industries, allowing them to pay lower Corporation Tax rates. Video Game Tax Relief works in the same way as SME R&D Relief in that it provides an additional deduction against taxable profits.
12. Share schemes
When companies offer share plans to their employees, they can often obtain a corporation tax deduction, which can also be a good way to incentivize and reward them. There are numerous schemes available, so seeking advice is essential to ensuring you use the best one for your company.
13. Make a claim for all available loss reliefs.
Ascertain that your company is claiming all available loss reliefs. A company can incur various types of losses, 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 another group company.
14. Subscriptions and training expenses
Training and subscription costs can be paid for by the company as long as they are related to the company's activity and do not result in income taxation for the benefiting employee. The costs may be tax deductible for the company, resulting in tax-free employee development.
15. Expenses for a Staff Party
Employees can deduct up to £150 per head for an annual staff party (such as a Christmas party) and the company can deduct up to £150 per head. This can be a tax-efficient way of rewarding employees while also building goodwill among your workforce.
CruseBurke best Accountants in Croydon has been providing assistance to local businesses. Yes, we can trace our roots all the way back to World War II, and we take great pride in our age.
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