Tips to reduce Corporation Tax

Companies try their best to reduce corporation tax bills most commonly by way of business expenses. We strongly advise our clients to adopt various strategies to reduce their corporation tax liability as nobody wants to pay more tax than what they need to.

In this article we cover:

• Don’t forget to claim all business expenses
• Work from a home allowance
• Director salaries
• Pension contributions
• Share schemes
• Claiming R&D relief
• Annual Investment allowance
• Claim the Losses

Please find below tips you can use to reduce your corporation tax liability

1. Dont forget to claim all business expenses

You must keep track of all your business expenses which you can claim as a limited company, leading to a reduction in your profits and resulting in a further reduction in corporation tax liability. It is often seen that directors spend money on behalf of the company but later failed to claim the same through their accounting records. There are numerous expenses which you can claim as a limited company - Click here to know more about claiming business expenses.

2. Work from a home allowance

You can claim a portion of additional expenses you incur while working from home such as internet charges, telephone calls, insurance, electricity, heating etc. which leads to a reduction in the corporation tax. Payment of £6 per week or £26 per month from the employer is acceptable. Click here to know more about work from a home allowance.

3. Director salaries

A company can also reduce its corporation tax by using personal allowances of directors effectively. A director of a limited company can withdraw a tax-efficient combination of salary and dividends from the business to reduce the corporation tax liability.

4. Pension contributions

Pension contribution is a straight-forward way of reducing corporation tax. reducing corporation tax. Generally, companies make deductions from their profits by making pension contributions on behalf of directors or employees into the pension schemes. To obtain relief, you must make payments into the pension scheme before the end of the accounting period. Click here to know more about pension contributions.

5. Share schemes

Companies can also obtain a deduction on corporation tax by offering share schemes to their employees, which is one of the best methods of incentivising and rewarding employees based on their work. There are many share schemes available to choose from; therefore, it is recommended that you must take professional advice and select the best scheme for your business. Click here to know more about share schemes.

6. Claiming R&D relief

Every business must assess whether they are eligible to claim R&D tax relief or not? The government introduced this scheme to support companies engaged in innovative projects in science & technology, which includes creating a new product, process or service or improvement in any existing product, process or service. Companies engaged in such projects are allowed to claim R&D tax relief and reduce their corporation tax liability. It can even be claimed in case of unsuccessful projects. Click here to know more about R&D tax relief.

7. Annual Investment allowance

Companies can claim immediate tax relief by deducting their business equipment’s full cost from profit before tax by using their Annual investment allowance. On 1 January 2019, there has been an increase in annual investment allowance to £1m which means that you can write off a significant investment amount against profits you have invested in your project, resulting in the reduction of your corporation tax to some extent.

8. Claim the Losses

Claiming of available loss relief also help in lowering down your corporation tax. Make sure that your business claims all the available losses (if your company suffered a loss), but there are certain circumstances in which losses are carried back to the previous year for generating tax refund or carried forward against future profits or even sometimes surrendered to a group company.

Making use of more and more tax reliefs can help you reduce your corporation tax liability and save much of your money, which you can invest in your business to attain future growth.

In case you are having any query or want specialist advice on "Reducing your corporation tax liability", kindly call us on 03330886686, or you can also e-mail us at enquiry@dnsaccountants.co.uk.

About the author

Siddharth Agarwal
I am a Chartered Tax Advisor (OMB) and ACCA. I have 9+ years of experience in owner-managed business taxation issues, company reorganisations, property taxation, and succession planning. I also work with private clients on bespoke tax planning strategies for trusts, residence status, and non-residents. I aim to fulfil my professional duties towards my clients and keep them satisfied, my utmost priority. I believe in establishing and maintaining businesses and personal relationships as the key to mutual growth.