Every corporation must pay taxes in order to function legally within the country’s economy and social system. But for some companies, the corporation tax bill grows higher and higher each year. Is there any way to reduce this tax legally?
There are in fact several ways that you can legally and legitimately reduce your corporation tax liabilities. If you are looking to pay the smallest amount of taxes possible on your corporation this year, you will want to follow the expert-led tips in this guide.
But first, take a moment to understand what exactly a corporation tax is and which items you can expect to show up on a corporation tax bill.
About Corporation Taxes
If you are a limited company, a club, a co-op, or a foreign company with a branch in the UK, you must pay a Corporation Tax annually. While you do not receive a monthly bill for this, you must register for a Corporation Tax as soon as your company is established.
Once you have registered, you must be responsible for keeping your own accounts and records, so you know what to pay when the time comes. You must always pay your tax by the deadline, which is typically 9 months after the end of your accounting period.
With your Corporation Tax, you are paying for your yearly profits, investments, and chargeable gains.
Now, let’s look at some of the best ways to reduce these yearly taxes so your company can continue to thrive.
1. Claim Your Business Expenses
The first thing you should do is claim any and all expenses faced by your company throughout the accounting year. Look through your records and try to find any instances of incurred expenses. This could mean a time when one of your department heads took an important client out for lunch, charging that lunch to the company’s account.
Or, it could be a time when one of your delivery drivers had to drive all day, which surely racked up some money in gas and mileage. These are expenses you can write off on your corporation tax bill.
2. Get R&D Tax Relief
Did you know that your government will actually pay your company for new inventions and innovations? So, if you have a big tech team at your disposal who is either solving old issues or creating new products and pieces of software, then you may be eligible for some tax relief from the country itself.
According to Shorts, you can earn £25,000 for every £100,000 your company spends on invention, innovation, or problem-solving. Nothing is stronger than a government-backed tax relief!
3. Contribute to Pensions
Many companies across the globe offer pension programs for their employees. The way these programs work is simple: you pay into a pension plan on behalf of your employees, which is for the employees to use as soon as they retire.
Make sure to let your government know that you are contributing to a pension scheme, as this makes for an automatic corporate tax reduction. Just make sure that payments are being made before the end of your annual accounting year for it to count towards tax reduction.
4. Allow Employees to Work from Home
Did you know that you can actually get paid to spend some time working from home? The HMRC lets you claim a certain amount of the expenses you incurred working from home in order to reduce your yearly taxes.
When you think about it, it costs money to work from home. You must have your lights turned on and your heater or air conditioning unit running in order to have a comfortable workspace. These are considered as work expenses, which can be written off in order to reduce your tax amount.
You can also apply for a tax relief depending on how much you spend at home for Internet access, phone calls, or extended work insurance policies.
5. Claim Patent Box Tax Relief
Make sure to take advantage of something that is your intellectual or commercial property. If you do own a patent, you may be able to apply for Patent Box tax relief. This tax relief allows you to pay a lower tax rate on the profits you earn from patented products than the regular tax rate you pay on everything else.
In the UK, this tax rate is just 10%, which can significantly lower your company’s annual payments. Just make sure your patent is exclusively licensed, or else you may need to take additional steps to get this big of a tax discount.
6. Get Capital Allowances on Your Property
Is your business expanding? It’s okay to say yes; in fact, you shouldn’t be afraid to grow. The government allows you to claim a 2% down allowance on any new expenditures on your commercial buildings.
These capital allowances exist to encourage company growth without punishing you for growing with a higher bracket. While a 2% straight down allowance may not seem like much, it can end up giving you significant reductions on your annual taxes.
7. Claim Your Losses
It is never fun to admit loss, but you can still find value in loss as it will allow you to reduce your corporation tax bill. Depending on the type of loss your company has suffered, you may be able to get a tax refund to cover any financial expenses that were lost due to this problem.
In the event that your loss cannot be carried back to the year before in order to get a tax refund, you can always carry it forward to get a tax break or tax reduction on future profits.
Find the Best Way to Reduce Your Corporation Tax
Paying taxes is never fun, but it is necessary to remain on the books as a valid legal company. Thankfully, there are several ways to reduce your corporation taxes each year, which can give you an advantage with extra money to save. If your company thrives on innovation, invention, or problem-solving, you can get an even bigger tax break for your creativity.
The government wants you to feel inspired to grow and produce, and so there are many incentives available to help keep costs low while you continue adding benefits and improvements to the world.
Anthony Hanson is the founder of iFinance Department, an online accountancy aimed at helping small and medium businesses grow through the combined power of cloud technology and true financial expertise.