Insights | Accounting, Corporation Tax, Stretford, Tax

8 Ways to reduce your Corporation Tax Bills (Limited Companies)

There are numerous ways in which a company can reduce its Corporation Tax Bill. Broadly speaking these Tax savings will come in the form of Tax Reliefs and expenses that are classified as being Tax deductible.

All too often we have seen businesses pay too much in Tax. This has largely been due to not claiming expenses that are Tax deductible. This issue is more evident in smaller businesses that have decided to manage their own Tax affairs and not to engage a qualified accountant.

Below we will consider just 8 ways in which a Limited Company can reduce its Tax Bill, these are merely a sample and not all of these may apply to your business.

1. Expenses – claim all allowable costs

There is a wide selection of allowable expenses that a company can claim. There are different Tax and reporting requirements depending upon the type of expenses and business classification in question. Listed below are just a few examples:

• Business Insurance 
• Marketing and Advertising costs
• Rent and Rates (Premises expenses)
• Loan interest payments
• Salaries and Wages
• Staff related expenses
• Stationery
• Postage
• Printing

2. Capital Allowances

When a Limited Company purchases assets that are required for business use, capital allowances can be claimed resulting in a reduction in Corporation Tax. Such examples would include plant and machinery (machinery and equipment necessary for business use). Other examples will include cars, vans and HGV vehicles.

Once the value of the asset has been calculated, this can then be deducted from profits to arrive at a lower Corporation Tax Bill. Apart from plant and machinery, capital allowances can be claimed for:

• Research and Development expenditure
• Patents and Intellectual property and
• Equipment

3. Trading Losses

A company can use Trading Loss Relief in order to reduce the current year’s Corporation Tax payable. Tax relief results from off-setting trading losses in order to arrive at the profits that are falling under the charge for Corporation Tax. Capital allowances can be claimed alongside losses resulting in greater Tax savings. 

The computation becomes more complex when assets have been sold or disposed of.

4. Patent Box Relief

The Patent Box Regime allows qualifying Limited Companies that have income from patented inventions to pay a lower rate of Corporation Tax, resulting in a lower end-of-year Corporation Tax Bill.

Limited Companies that have qualifying expenditure that falls under the umbrella of Patent Box can expect to pay Corporation Tax at 10% as opposed to the current rate of 19%

5. Research and Development

Research and Development (R&D) is relief available to businesses working within the Science and Technology sector. Expenditure must qualify in order to be eligible for the relief. In order to qualify businesses must be able to demonstrate and explain the following:

• How the given project attempts to advance Science and Technology
• How the project has tried to overcome uncertainty and
• Why the product could not have easily been developed by a professional

There are several types of Research and Development relief available, much will depend upon your business. Businesses with less than 500 staff and with a turnover of under 100 million pounds can claim small and medium-sized business relief.

• Simply put – a qualifying project can deduct an extra 130% of costs from their yearly profits, which is in addition to the normal 100% deduction, resulting in a total deduction of 230%.
• The relief is also extended to loss-making businesses, which can claim 14.5% of the surrendered loss.

6. Employment Allowance

Employers’ Allowance is a Government Approved Scheme that enables qualifying Limited Companies to reduce their yearly National Insurance liability by up to £5,000 per year. Employers’ Allowance is unfortunately not available to single Director Limited Companies.

7. Working from Home

In light of the number of small Limited Company businesses working from home, this is a useful relief. Where the home is being used for business usage, all Limited Company Directors can claim a percentage of household costs. Each calculation will be dependent upon its own criteria, merits and type of business involved.

8. Goodwill and relevant assets

Corporation Tax Relief is available on qualifying intangible assets which include intellectual property and goodwill. Relief for qualifying expenditure is available at a fixed rate of 6.5% per year on the lower of:

• The cost to acquire the asset in question
• As a multiple of the cost of any qualifying Intellectual Property assets the business has purchased

Conclusion

Want to reduce your company’s Corporation Tax bill legally and efficiently? Accounting Solutions Manchester provides proactive tax planning to help limited companies claim all available reliefs, maximise tax savings, and stay fully compliant. Call us today on 0161 879 7175 for a free, no-obligation consultation.