Navigating the intricate regulations of corporation tax in the UK can be a daunting task for many business owners. In this blog, we delve into eight strategies that can help business owners across the UK reduce their corporation tax bills.
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WHAT IS CORPORATION TAX?
Corporation tax is a direct tax levied on the profits of businesses or corporations in the UK. The rate of this tax varies with the level of corporate income, meaning higher incomes attract higher rates of corporation tax. Businesses, referred to as corporations, must calculate their taxable income by deducting allowable expenses from their revenue.
8 WAYS TO REDUCE CORPORATION TAX
PAY YOURSELF A TAX-EFFICIENT REMUNERATION
As an owner or director of a limited company, you can reduce your corporation tax by structuring your remuneration efficiently. Combining salary, bonuses, and allowable benefit contributions in a way that aligns with business expenses can optimise your take-home pay.
CLAIM YOUR COST OF SALES
By claiming business-related expenses such as materials, marketing activities, and operational costs, you can lower your corporation tax. Ensuring all expenditures are accounted for can help reduce the overall tax owed.
CLAIM WORK-FROM-HOME ALLOWANCES
The shift to remote working has highlighted the importance of claiming work-from-home expenses. These costs often exceed the fixed allowance, so it is essential to keep receipts and calculate expenses for heating, lighting, broadband, and telephone charges. Using your home for business purposes may also necessitate paying realistic commercial rent.
TRAINING AND DEVELOPMENT
Investing in training and development programs can reduce taxable income while enhancing your workforce’s skills and efficiency. These expenses are deductible and offer substantial non-tax benefits by fostering a more proficient team.
SET UP AN EMPLOYEE SHARE SCHEME
Employee share schemes offer significant business perks, including the potential to reduce tax bills by claiming set-up costs. These schemes motivate employees through ownership and provide a tax-efficient way to improve finances and boost staff loyalty.
SET UP A COMPANY PENSION FUND
Establishing a company pension fund can provide tax advantages by allowing business owners to claim costs associated with setting up and maintaining the fund. This can reduce the overall liability for corporation tax.
MAKE USE OF BUSINESS LOSSES
Utilising trading losses can help decrease your current corporation tax bill. High allowable taxes in the same year enable you to carry the loss forward, benefiting future tax years’ profits and reducing subsequent corporation tax bills. This strategy helps optimise the relationship between losses, expenses, and taxation.
MAXIMISE CAPITAL ALLOWANCES
Investing in essential business assets like plant, machinery, or equipment allows you to claim capital allowances. These can be claimed as annual investment allowances or for each year you own the assets, depending on the type. These allowances help recover part of the capital expenditure incurred.
If you need assistance, contact the M.B McGrady & Co. team today, who will be happy to assist with all your accountancy needs and requirements. Call: 028 9031 6950 or email: info@mbmcgrady.co.uk.