How to reduce your Corporation Tax

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How to reduce your Corporation Tax

Nowadays, companies are searching for ways to reduce corporate tax liabilities. Corporations must comply with the correct corporate tax laws, but that does not mean that they should over-pay. 

Considering the recent announcement by the Chancellor that the corporate tax rates will be going up, this has gained even more significance. 

Small business owners must be aware that corporate tax applies to the company’s profits. However, not all business expenses are tax-deductible. 

Client entertainment is one of the most common examples of a non-tax-deductible business expense. However, there are also plenty of costs that you are claiming for can ensure that your corporate tax bill will be reduced.

Here are Experlu – an online platform for finding accountants in London sharing 8 top tips on how to reduce corporation taxes

  • Pay early to HMRC

First top tip is to pay HMRC on time. With a small percentage interest of 0.5 per cent, HMRC rewards those who spend their corporate tax early.

You can apply within six months and 13 days after starting the accounting period at the earliest for paying their corporation tax. 

It means you must pay an initial sum of what you think is likely to be the corporate tax bill for the entire year.

If the accounting period runs from 1 January until 31 December each year, then the earliest you can pay is 13 June. The usual company tax return period of 9 months and one day is the deadline to pay for this accounting period. It would be 1 October in the year following the end of their accounting period.

  • Invest in equipment & Plants

Organisations can benefit from the “Annual Investment Allowance” (AIA), which allows a corporation to obtain immediate tax relief up to a defined cap on acquiring specific business properties. 

The new AIA is £ 1 million, which ensures that businesses investing in qualified items will write off a large amount of investment against their earnings.

  • Research and Development claim

A government tax relief for innovation could miss out on your business. Your business may be liable for this tax relief if implementing new goods, processes or applications. 

For a £ 100,000 spent on research, this will equate to additional tax relief of up to £ 24,700. 

If the business makes a loss, you can claim a tax credit paid in cash.

  • Employee share scheme

Companies may gain a corporate tax deduction if they offer shares to their employees. 

The business earns profits from this tax-saving and can also provide claims to improve workers’ retention and inspire staff at the same time. 

There are many programs available to choose from, so it is essential to get advice on which one would better suit your company.

  • Claiming personal expenses for business 

Any employee can claim expenses from the company on a tax-free basis, using statutory rates per mile to use their private vehicle for work.

  • Up to an estimated 10,000 miles @ 45p
  • At 25p above 10,000 miles

 

  • Contributions to Pension

On behalf of employees or directors, companies may generally receive a deduction from their profits for pension contributions paid into pension schemes. 

Payments must be made by the end of the accounting period to seek relief. 

It is a reasonably simple way to minimise corporate tax, but consideration should also be given to individuals’ tax positions before making donations.

  • Work from Home Allowance 

You can claim a portion of your home expenses during this pandemic when work from home is the new norm. 

Such expenses cover the additional costs of lighting and heating the work area. There may also be higher costs for insurance, internet access, or telephone calls, etc. 

A £6 per week allowance from the employer is acceptable as a starting point.

  • Tax relief for creative industries

It may be more challenging for some sectors, such as those employed in the creative field, to apply for R&D tax credits. As an alternative, eight corporate tax reliefs unique to specific creative industries were devised by the government:

  • Film Tax Relief
  • Tax Relief for Animation
  • Relief from Children’s Television Tax
  • Theatre Tax relief
  • Orchestra Tax Relief

The amount of additional deductions these businesses can claim is the lower of:

  • 80% of the overall core expenditure; or
  • the amount of UK core expenditure; or 
  • the amount of core expenditure on goods and services rendered by the European Economic Area (if applicable), 

Winding-up

Tax is a dynamic, ever-changing area, and every business has different circumstances and is liable for exemptions or deductions. 

So, it is often a good idea to hire an accountant in central London before implementing corporate tax deduction strategies.

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