Companies which are regularly looking to reduce their corporation tax need to have a proper understanding of how the tax system in their country works, and require time to plan their finances efficiently. It is essential for businesses to adhere to the correct rules for paying corporation tax, however save themselves from overpaying.
The tax system can be confusing sometimes, but there are ways to lower your corporation tax bill legitimately. Currently, corporation tax is at a rate of 21%, which seems quite appealing to companies, however, you can work on reducing this tax rate even more.
Let’s discuss ways to reduce corporate tax legitimately.
10 Ways to Reduce Corporation Tax
Follow these tips to get a little relief from your business corporation taxation.
Claim All Business Expenses
Always make sure to claim all your business expenses, including the bigger to the smallest ones. It might be difficult for you to record even the minute of costs such as taxi fares, car parking fees or other small expenses, but it is still very important.
The sum of all the small expenses adds up to a significant amount in time, and claiming those expenses all together ends up in reducing your company’s profit in documentation while reducing the corporation tax you need to pay.
Claim Car Mileage
Another claim that adds up to be a huge amount and you might miss is the car mileage. It is definitely tax efficient for business owners and staff to use their own cars and claim the car mileage using the official authorized mileage rate.
Any employee in the business can claim up to almost 10,000 miles per year for business travel. For anything over 10,000 miles, the costs change a little. The business owner cuts this cost from the company’s profit for the amount it pays out to employees.
Claim Tax Relief for R&D
If you have a business of developing new products, processes, software or technologies, you are eligible to claim the research & development tax relief. You could be missing out on the government tax relief for innovation, so be aware.
R&D tax relief could amount up to $25k to $250,000k spent on research. In the case of the business bearing losses, it could claim a tax credit which will be paid in cash.
Tax Relief for Creative Businesses
Creative industries such as video games production, animation programs, films and TV programs, theatrical production, orchestral concerts or anything elgibile to be put up in an art gallery or museum is considered to be a part of the creative business industry and you could benefit from them.
The tax relief comes in the form of additional deduction, but the rules for every scheme related to this industry varies, so you need expert help to find out more. Accountants are the best people to take advice from regarding making more money and saving methods. Although they charge an accountancy fee, they can help you save much more and make your business claim whatever you are entitled to.
Consider An Employee Share Scheme
In order to reduce the corporation tax even more, companies can offer shares to their employees. Through this method, companies can benefit as they are saving more taxes, while offering their company shares makes the employees more motivated and increases staff retention.
Among the several employee schemes available, it is upon your business as to which one you want to choose, so it is best that you take advice from an expert before choosing the scheme for your business.
Pay The Directors
Salaries are considered to be a business expense, unlike dividends which come out of the company’s profits. The best approach to reduce your corporation tax is to find the perfect mix of paying the directors with dividends and salaries both.
This option needs proper planning as there are several other business factors involved such as income tax, National Insurance Contribution (NIC) and personal circumstances.
Use a Business Mobile Phone
If all your work is mostly call related, or you use your mobile for business purposes a lot, then you should definitely switch to a separate business mobile phone. It helps as there is no tax charge for the staff using a business phone, no phone costs, line rental or any other call costs.
This helps in the reduction of overall corporation tax for the business and the company.
Utilize Capital Allowances on Property
Businesses are allowed to claim up to 2% straight allowance on any new commercial building expenditure. For any buildings acquired prior to the capital allowance plan, the companies can review the expenditure incurred to determine whether their property qualifies for capital allowances or not.
The claims for capital allowance cannot be made when the costs were incurred, therefore, in several situations, there is a possibility of missing out your claim in allowances which might go back to several years, when the property was originally acquired.
Consider Pension Schemes
In order to pay for pension contributions into pension schemes on behalf of the employees and the directors, companies usually obtain a deduction in the overall profits of the business. The payments are made before the end of the accounting period in order to obtain relief.
This is one straightforward way to reduce the corporation tax, considering the individuals personal tax position before making contributions.
Pay for Annual Staff Parties
The business can enjoy reduction in the tax by claiming costs up to $150 per head for an annual staff party, such as on Christmas or new year’s. This way the business owner can reward the staff in a tax efficient manner while building goodwill across the workforce.
There is no benefit in kind, so the company must claim the deductions in the expenditure of the business.
Now that you know tax is quite complicated and each company has their own different expenditure system, therefore, you must be aware of the allowances your business can claim or expenses that you could deduct from your expense account in order to save yourself from the huge tax burden every year.
Hope this helped you save some bucks before paying your corporation tax blindly!