Companies – tax saving opportunities

As a business owner, staying on top of your finances and finding ways to minimise your tax liabilities is crucial. Fortunately, various tax-saving opportunities in the UK can help you keep more of your hard-earned money. This article will discuss some of the most effective tax-saving opportunities for UK companies.

Research and development tax credits

The UK government offers tax credits to companies that invest in research and development (R&D). If your company is engaged in R&D activities, you may be eligible for tax relief that can help reduce your corporation tax liability. R&D tax credits are available to companies of all sizes, and the relief can be worth up to 33.35% of your R&D expenditure.

To claim R&D tax credits, you must apply to HM Revenue & Customs (HMRC). The application process can be complex, and it’s advisable to seek professional advice to ensure that you claim the correct relief.

Capital allowances

Capital allowances allow you to claim tax relief on certain types of capital expenditure, such as equipment, machinery, and vehicles. This relief can help reduce your corporation tax liability and free up cash flow for your business.

There are several different types of capital allowances available in the UK, including:

• Annual Investment Allowance (AIA): You can claim 100% tax relief on qualifying capital expenditure up to a specific limit.
• Writing Down Allowance (WDA): This allows you to claim tax relief on the value of your assets over time, gradually reducing your corporation tax liability.
• First-Year Allowances (FYA): You can claim 100% tax relief on qualifying expenditures in the first year of ownership.

You need to include capital allowances in your tax return to claim them. Again, seeking professional advice is advisable to ensure you claim the correct relief.

Employee share schemes

Employee share schemes are a tax-efficient way of incentivising your employees and can help reduce your corporation’s tax liability. These schemes allow your employees to acquire shares in your company, either for free or at a discounted rate.

There are several different types of employee share schemes available in the UK, including:

• Share Incentive Plans (SIPs): This allows your employees to acquire shares in your company, either for free or at a discounted rate. The shares must be held in trust for at least three years before being sold.
• Enterprise Management Incentives (EMIs): This allows your employees to acquire shares in your company at a discounted rate. The shares can be sold immediately, but there are restrictions on the size of the company and the value of the shares that can be issued.
• Company Share Option Plans (CSOPs): This allows your employees to acquire shares in your company at a discounted rate. The shares must be held for at least three years before being sold.

Employee share schemes can be complex, and it’s advisable to seek professional advice to ensure you set up the scheme correctly.

Pension contributions

Pension contributions are a tax-efficient way of investing in your employees’ futures and can help reduce your corporation’s tax liability. Employee pension contributions are deductible from your company's profits, reducing your corporation tax liability.

There are two types of pension schemes available in the UK:

• Defined Benefit Schemes: This provides a guaranteed income in retirement based on the employee’s length of service and salary.
• Defined Contribution Schemes: This provides a pension pot based on the employee’s contributions and investment returns.

Pensions can be a complex area, and it’s advisable to seek professional advice to ensure you set up the scheme correctly.

Salary sacrifice

Salary sacrifice is another tax-efficient way of reducing your corporation tax liability. This involves agreeing with your employees to reduce their salary in exchange for non-cash benefits, such as a company car, childcare vouchers, or additional pension contributions.

By reducing your employees’ salary, you reduce your National Insurance contributions, which can help offset the cost of the non-cash benefit.

It’s important to note that the rules around salary sacrifice changed in April 2017. Now, only certain benefits are eligible for salary sacrifice, and there are restrictions on the amount that can be sacrificed.

Again, seeking professional advice is advisable to ensure that you set up the scheme correctly and comply with the new rules.

Corporation tax loss relief

If your company makes a loss, you can claim corporation tax loss relief. This allows you to carry the losses and set them against future profits, reducing your corporation’s tax liability.

There are two types of loss relief available:

• Trading Loss Relief: This allows you to carry forward losses from your trading activities.
• Non-Trading Loss Relief: This allows you to carry forward losses from your non-trading activities, such as property rental.
• It’s important to note that the rules around loss relief changed in April 2017. Now, there are restrictions on the amount of loss relief that can be claimed.

Again, seeking professional advice is advisable to ensure you claim the correct relief.

VAT cash accounting scheme

If your company has a turnover of less than £1.35 million, you may be eligible for the VAT Cash Accounting Scheme. This allows you to pay VAT based on the payments you receive rather than on the invoices you issue.

This can help with cash flow, as you only pay VAT on the money you’ve received rather than on the money you still owe you.

It’s important to note that the scheme has limitations and is unsuitable for all businesses. Again, seeking professional advice is advisable to ensure that you choose the right VAT scheme for your business.

Conclusion

There are many tax-saving opportunities available to UK companies. By taking advantage of these opportunities, you can reduce your corporation tax liability and free up cash flow for your business.

However, it’s important to note that tax rules and regulations are complex, and it’s easy to make mistakes. That’s why it’s advisable to seek professional advice to ensure you take advantage of all the tax-saving opportunities available to your business.