Corporation Tax How to save money

Corporation Tax is complicated and is an ever-changing subject. Each company can be eligible for certain allowances and deductions depending on the nature of their business.

corporation tax tips to save money

Companies are often looking for ways they can save on the corporation tax they pay. Businesses must adhere to the correct corporation tax rules, but they shouldn’t be overpaying.

Rules and regulations and the UK tax system can be confusing for everyone however there are some ways to lower your corporation tax bill legitimately.

19% is the current corporation tax and it has been steadily reducing over the last few years which is good for companies. There still may be ways to reduce this further and we are here to tell you how.

corporate tax allowances

1. Claim all business related expenses – no matter how big or small

You should claim for all your business expenses no matter how small they are as this will save you money in the long run. It may feel pointless keeping all of those parking tickets and small purchase invoices, but they will all add up to a significant amount over time.

If you are not claiming back for all your business expenses you could essentially be throwing money away. By claiming back expenses you are reducing the company’s profits which in turn reduces the corporation tax you will pay. With a little organisation, this is a very easy way to save money. Online accounting software will also help you do this.

The criteria of what you can claim back varies from business to business. An expense that does not seem legitimate for one business may be a necessity for another. The one thing to remember when deciding what to claim is that HMRC state that all expenses claimed must be wholly and exclusively for business purposes.

2. Claim for miles travelled

Mileage claims are often missed because people feel it is very complex. It is often more efficient for staff to use their own cars and then to claim the mileage back using HMRC’s mileage rate. Employees can claim 45p a mile for up to 10,000 miles and 25p a mile for anything over 10,000.

The company will then get a deduction against its profits for the amount it pays to its staff.

3. Get a company mobile

You should consider getting a company mobile if you or your staff often make business calls on your personal phones. The company will get a tax deduction for the amount it costs and there is no charge to the employee for the phone.

corporation tax

4. Hold a staff Christmas party

I know this one doesn’t seem to make sense, but you can treat employees to an annual party providing it costs less than £150 per head and there is no benefit in kind. The company can claim a tax deduction for its expenditure.

5. Pay Corporation Tax to HMRC early

If you pay HMRC early you can earn interest as a reward however, if you pay late you can be charged interest and therefore it will cost you more money.

6. Pay directors a salary

Dividends are paid out of a company’s profit but a salary is classed as a business expense. Business owners should pay themselves a mixture of dividends and salary but this should be planned carefully and take into account income tax, National Insurance contributions and personal circumstances.

7. Use the annual investment allowance

The Annual Investment Allowance (AIA) if from the UK Government for companies purchasing assets to keep and use in their business. The money a company spends on plant and machinery, fixtures and fittings, commercial vehicles and integral figures can be offset against their profits for the year.

8.  Claim tax relief on research & development

If you aren’t claiming for research and development you could be missing out on lots of savings. If your company is developing new products, processes or software it may be eligible for tax relief. This additional tax relief can be up to £24,700 for every £100,000 spent on research. If your company made a loss you may be eligible to claim a cash tax credit.

corporate tax

9.  Employee share schemes

Businesses can reduce their corporation tax bill if they offer shares to their employees. There are many different share schemes and each one is slightly different so make sure you choose the right one for your company. This can also increase staff retention and motivate employees as well as saving the company money.

10. Creative industry relief

If your company is in the creative industry producing video games, animation programmes, certain films and TV programmes, theatrical productions, orchestral concerts or putting on a qualifying exhibition in a museum you may be able to claim an addition corporation tax relief. There are 8 different schemes and the rules vary for each.

11. Pension contributions

Companies can normally obtain a deduction from their profits for pension contributions paid into pension schemes on behalf of employees or directors.  Payments must be made before the end of the accounting period to obtain relief.  This is a quite straightforward way to reduce Corporation Tax, although consideration should also be given to the individual's personal tax position before making contributions.

working from home allowance corporation tax

12. Work from home allowance

Where homeworking takes place, HMRC will allow you to claim a portion of your home expenses to meet the additional costs of heating and lighting the work area.  There might also be increased charges for internet access, insurance or telephone calls etc.  As a starting point, a £4 per week payment from the employer is acceptable.

13. Losses

Make sure that your business is claiming all available loss reliefs.  There are different types of loss that a company can suffer, but in certain circumstances, they can be carried back to a previous year (to generate a tax refund), carried forward against future profits or even surrendered to a fellow group company.

14. Don’t miss deadlines

Companies normally have two years from the end of an accounting period to claim certain tax reliefs, such as R&D tax reliefs, capital allowances and patent box relief.  Companies should look to make sure they have claimed their full entitlement to these reliefs before it is too late.

15. Claim Trivial Benefits

You can gift your staff following the guidelines outlined below and the income used to buy the gift won’t count towards taxable income or Class 1 National Insurance contributions. Trivial benefits don’t need to be reported on your annual P11D and P11Db forms.

Directors of ‘close’ companies (5 or fewer shareholders who are all directors) can receive up to £300 worth of trivial benefits providing they meet the guidelines.

Trivial benefits must:

  • Cost you £50 or less to provide
  • Not be a cash or cash voucher
  • Not be a reward for their work or performance
  • Not be in the terms of their contract

Examples of trivial benefits:

  • Taking a group of employees out for a meal to celebrate a birthday
  • Buying each employee a Christmas present
  • Flowers on the birth of a new baby

For more information on Trial Benefits, please see this useful Article on Crunch.

Accountants are here to help business owners save money where appropriate although you will have to factor in accountancy fees. Tax is complicated and is an ever-changing subject. Each company can be eligible for certain allowances and deductions depending on the nature of their business. Before making any decision and implementing any tax corporation deduction techniques it is advised that you seek professional guidance from your accountant.

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