How to reduce corporation tax?

Research and development allowance tax relief

Research and Development (R&D) Allowance Tax Relief is a UK-based scheme that allows companies to claim tax relief on qualifying R&D expenditure. The scheme encourages companies to invest in innovation and research activities. The relief is available to companies of any size and sector, including SMEs.

The relief is a deduction from a company's profits before corporation tax is calculated. It's important to note that the eligibility criteria for R&D Tax Relief are complex and specific. It's recommended to consult with a professional or an accountant to determine if a project or activity qualifies for the relief and how to claim it.

Trading losses

Trading losses can reduce a company's corporation tax liability in the UK. A trading loss occurs when a company's expenses exceed its income. These losses can be carried forward to offset against future profits from the same trade, and they can also be carried back to offset against profits of the previous year. The rules for how trading losses can be offset against corporation tax vary depending on the type of loss, the year in which it was incurred, and the company's accounting period.

Patent box

The Patent Box is a scheme in the UK that allows companies to apply a lower corporation tax rate to a proportion of their profits from patented inventions and certain other innovative products and processes. The lower rate of corporation tax is currently 10%.

To be eligible for the Patent Box, a company must hold a qualifying patent for an invention or have a product or process similar to a patented invention. The company must also actively manage and develop the patented invention or similar product or process. The company's profits from the patented invention or similar product or process must also be attributed to the company's trade.

Claim business expenses

Claiming business expenses is a way for companies to reduce their corporation tax liability in the UK by offsetting business expenses against their profits. Business expenses are costs that are incurred "wholly and exclusively" for the trade. Companies must keep accurate records and receipts to claim business expenses and demonstrate that the expenses were incurred solely for the trade. Some expenses may need to be apportioned if they are used for business and private purposes.

Pension contributions

Pension contributions made by a company on behalf of its employees can be used to reduce the company's corporation tax liability in the UK. The company can claim tax relief on its pension contributions as a business expense. The specific rules for claiming tax relief on pension contributions can vary depending on the type of pension scheme and the year in which the contributions were made.

It's important to note that there are limits on the amount of pension contributions that can be claimed as a tax-deductible expense. Companies should consult with a tax professional or pension advisor to determine how to claim relief on pension contributions and how it affects their corporation tax liability.

Invest in enterprise investment scheme

Investing in an Enterprise Investment Scheme (EIS) is a way for companies to reduce their corporation tax liability in the UK. The EIS is a government scheme designed to encourage investment in small, high-risk trading companies by providing tax incentives to investors.

When a company invests in an EIS-qualifying company, it can claim tax yearly. The company can also claim relief on any capital gains realised on the disposal of the EIS shares, provided the shares have been held for a minimum of three years. It's important to note that to claim tax relief, the company must be an unconnected person to the EIS-qualifying company, and the investment must be made in new shares, not existing ones.

Subscription and training costs

Subscription and training costs can be used to reduce corporation tax liability in the UK by claiming them as business expenses. These costs can be claimed as tax-deductible if they are incurred "wholly and exclusively" for the trade.

Some of the subscription and training costs that can be claimed include the following:

• Subscription fees for industry publications or online services
• Training courses or seminars related to the company's trade
• Professional membership fees

To claim these expenses, companies must keep accurate records and receipts of all costs and must be able to demonstrate that the expenses were incurred wholly and exclusively for the purpose of the trade. Some expenses may need to be apportioned if they are used for business and private purposes.

Claim available loss reliefs

Claiming available loss reliefs is a way for companies to reduce their corporation tax liability in the UK by offsetting losses against profits. One of the reliefs is the "carry forward" relief, which allows companies to set losses made in one year against profits made in the same or later years. This relief is available for both trading and non-trading losses.

Another relief is the "carry back" relief, which allows companies to set the current year's trading losses against the previous year's profits.