10 Ways To Reduce Corporation Tax

Companies are regularly looking for ways to reduce the corporation tax they pay. It is important for businesses to adhere to the correct rules for corporation tax however that doesn’t mean that they should be over-paying. The UK tax system can be confusing, however there are some ways to lower your corporation tax bill legitimately. All you need is an understanding of how the UK tax system works, some organisation and a little time to plan your finances efficiently.

Currently, corporation tax is at a rate of 19% and has been steadily declining in the UK over the past few years which is appealing to companies, however there are still ways to reduce this amount even further. Here we discuss 10 ways to reduce corporation tax.

1. Claim ALL business expenses- no matter how small

Don’t forget to claim for all your business expenses. Although you may struggle to keep track of every taxi journey, car parking fee or small stationary purchase, it is important you record everything as the sum of these smaller purchases can add up to a significant amount over time.

If you are failing to claim all your expenses, you could be throwing money away. The reason for this is that when you claim company expenses, you are reducing your company’s profits. This in turn, will reduce the end amount of corporation tax you will need to pay. All it takes is a bit of organisation to keep on top of all the business costs, regardless of the amount, as it will benefit the business in the long run. Using online accounting programmes can make this process easier for you.

Remember, that what counts as a business expense can vary from company to company. What may seem like an extravagant cost for one company may be a necessity to another. The main thing to remember is the HMRC rule that all business expenses need to be wholly and exclusively for business and not personal use.

2. Claim Mileage

Another claim that can be easily missed is car mileage. It can be more tax-efficient for business owners and staff to use their own cars and claim their mileage back using the HMRC’s official authorised mileage rate.

Any employee at the company can claim up to 10,000 miles per year for business travel at 45p per mile. For anything over 10,000 miles it is 25p. The company will get a deduction against its profits for the amounts it pays out to employees.

3. Use a company mobile phone

If you or your staff make regular business calls on your personal mobiles, consider using business mobiles instead. There is no charge to tax for the employee on the cost of the phone, the line rental or any calls, and the company gets a tax deduction for its costs.

4. Throw a staff Christmas Party

It seems a strange concept that hosting a Christmas party can be tax-efficient however if you stick to the guidelines this is the case. If all employees are treated to an annual party costing less than £150 per head, there is no benefit in kind and the company can claim a deduction for its expenditure.

5. Pay HMRC early

If you stay on top of your affairs and organise payment early, the HMRC will reward this early payment in the form of interest. On the other hand, if you pay late, you will incur interest, and this is always charged at a higher rate than the interest you receive on early payments or overpayments.

6. Directors should receive a salary

Unlike dividends which are paid out of a company’s profit, a salary is classed as a business expense. The best approach for business owners is to pay themselves a mixture of dividends and salary. However, this option needs to be planned carefully as there are other factors at play such as income tax, National insurance contributions and personal circumstances.

7. Take advantage of the Annual Investment Allowance

The UK government has an Annual Investment Allowance (AIA) for companies purchasing assets to keep and use in their business. This allows a company to set money spent on plant and machinery including fixtures and fittings, commercial vehicles and integral features against their profits for the year. The current AIA is £1 million but the allowance will reduce to £200,000 in January 2021.

8. Claim tax relief for Research & Development

Your business could be missing out on a government tax relief for innovation. If your company is developing new products, processes or software it may be eligible for this tax relief. This can equate to additional tax relief of up to £ 24,700 for every £100,000 spent on research. If the company makes a loss, it could claim a tax credit which will be paid in cash.

9. Consider an employee share scheme

Companies can obtain a deduction in corporation tax if they offer shares to their employees. Not only does the company benefit from this tax saving but offering shares can also increase staff retention and motivate employees at the same time. There are several schemes available to choose from, so it is imperative get advice on which one will suit your business best.

10. Receive a tax relief if you are in a Creative industry

Creative industry companies can benefit from additional corporation tax relief if they are involved in producing video games,  animation programmes, certain films and TV programmes, theatrical productions, orchestral concerts or putting on a qualifying exhibition in a museum or gallery. There are no less than eight different schemes. The relief is given in the form of an additional deduction, but the rules for each scheme vary, so you will need to seek advice.

Accountants are here to help business owners make more money and savings where appropriate. Although you will have to factor in accountancy fees, an accountant will advise you on where you can save money and help you claim for everything your business is entitled to.

Tax is a complicated, ever-changing subject and each company has a different situation and will, therefore, be eligible for certain allowances or deductions depending on their business. So before implementing any corporation deduction tactics, it is always a wise decision to seek professional advice from an accountant. Get in touch and the Wright Vigar team will be happy to help. Call us on 0845 880 5678 or email us on website@wrightvigar.co.uk