Reducing corporation tax can feel like a bit of a taboo topic. No one should be associated with avoiding tax but at the same time, there’s no reason to pay more tax than you’re required to.
There’s a wide range of tax reliefs and allowances available that can lower your company’s corporation tax bill. Taking up these opportunities where you’re genuinely eligible for them is both legal and encouraged by the Government, as an incentive for activities such as investment and innovation.
The key to reducing your corporation tax is to know the rules of the tax system and plan accordingly.
Claim eligible expenses
Our first tip is a basic one, but it’s often forgotten or put off by busy company directors.
When you just want to get your accounts done and move on, sifting through every single expense receipt can seem tedious. Some people might also avoid claiming allowable expenses in case they get it wrong.
It all adds up, and claiming every expense you’re entitled to can be an effective and easy way to reduce your corporation tax bill.
HMRC’s general rule is that any expense you claim must be “wholly and exclusively” for business purposes. If you’re not sure which of your expenses meet these conditions, we can help. There are also a variety of apps which can help capture expenses and reduce the admin burden.
Salary, pension and dividend planning
The cost of a director’s salary is tax deductible and the same goes for pension contributions. Pension contributions also receive income tax relief, therefore contributing to a pension can be a particularly tax-efficient way of pension planning. We can help you to plan the best mix of salary, pension and dividends for your circumstances.
Invest in equipment
You can claim capital allowances when you purchase equipment, machinery, and other assets to keep and use in your business.
It’s worth taking particular note of this tax relief this year, because the annual investment allowance (AIA) is temporarily at a high level of £1 million, from 1 January 2019 to 31 March 2023.
Superdeduction of 130% on qualifying new assets is also in place until 31st March 2023.
Claim relief for R&D
If your business is carrying out innovative research and development work, you can claim R&D relief.
The SME R&D scheme allows you to claim an extra 130% of qualifying costs, on top of your standard 100% deduction. This is available if your business has less than 500 staff, and a turnover of under €100 million or a balance sheet total under €86 million.
HMRC has specific criteria for projects that count as R&D – and it’s not just limited to lab research. If you’re looking to resolve a scientific or technological problem and make an advance in your field, it’s worth looking into whether you could qualify.
Use industry-specific tax reliefs
Some corporation tax reliefs are targeted towards specific industries and sectors.
In particular, companies in the creative industries can benefit from a set of eight tax reliefs if they produce:
- high-end, children, or animated television
- video games
- theatrical productions
- orchestral concerts
- museum or gallery exhibitions
All films, animation, TV programmes and video games must pass a cultural test by the British Film Institute (BFI) to qualify for relief. This is based on a number of factors which are different for each type of production – you can visit the BFI website to find out more.
Get expert advice on corporation tax planning
With more than 70 years of experience advising businesses in central Scotland, we know the corporate tax system inside out, and we’re ready to use that knowledge to help your business fly.
Get in touch for advice on managing your corporation tax.