For most limited company directors, paying the right amount of corporation tax is part of running a thriving business. What you don't want is to pay more than you need to, especially when sensible planning and up to date tax rules can make a real difference to your cash flow and growth plans. In this blog, we outline how to minimise corporation tax bills.
In the UK, the headline Corporation Tax rate is 25% for profits over £250,000, with a 19% small profits rate for businesses with profits up to £50,000 and Marginal Relief in between.
Below are questions and answers that every director should consider when looking to reduce their corporation tax bill.
What allowable business expenses can a limited company claim?
Before you start thinking about tax reliefs, make sure you're claiming every expense your company is entitled to.
Costs that are "wholly and exclusively" for business use, such as professional fees, travel expenses, software subscriptions, office rent and utilities, can be deducted from profits before tax is calculated.
Keeping accurate records and using good accounting software ensures nothing slips through the cracks.
How can limited companies take advantage of capital allowances?
When your business buys equipment, plant and machinery or vehicles, you may be able to claim capital allowances. This can let you deduct the cost from your taxable profits sooner rather than later.
One of the most valuable reliefs here is the Annual Investment Allowance (AIA), which allows companies to claim 100% relief on qualifying expenditure (up to £1 million) in the year of purchase.
Moving purchases into the right accounting period, before your year-end, can reduce this year's tax bill.
Can a limited company claim R&D tax relief?
Many companies don't realise they qualify for Research & Development (R&D) tax relief, even if they're not in traditional tech sectors.
Innovations that aim to deliver appreciable improvements in products, processes, or services, such as bespoke software or new manufacturing methods, could qualify. Eligible costs can reduce taxable profits.
R&D tax relief is a powerful incentive that's worth exploring if your business is doing anything that could be considered innovative, even on a modest scale. However, HMRC has recently tightened the eligibility rules, so it is always best to seek professional advice from an accountant, such as DWilkinson&Company, to ensure you are making a valid claim.
Can a limited company offset losses against profits?
If your company makes a loss, don't see it as a setback. Loss relief lets you offset that loss against profits from other periods, either carried back to reclaim tax already paid, or carried forward to reduce future tax bills.
For newer companies or those with volatile profits, this can be an important planning tool.
How can directors of limited companies pay themselves in a tax efficient manner?
How you pay yourself and other directors' matters. A sensible mix of salary and dividends, optimised alongside personal tax planning initiatives, can reduce both corporation and personal tax exposure. Dividends are paid from post-tax profits, but salaries are a deductible expense for the company.
Balancing these carefully with an accountant's help can be a subtle but effective tax-planning strategy.
Are charitable donations an effective way to reduce corporation tax?
Gifts to registered charities or approved community amateur sports clubs can reduce your taxable profits. Provided they qualify with HMRC, these donations are treated as allowable expenses.
This is not just tax smart, it's good for your company's reputation too!
Is timing important when it comes to reducing corporation tax?
A common theme in tax planning is timing. Expenses and income are taxed based on when they are incurred or recognised, not simply when cash changes hands.
Bringing forward expenditure or deferring income, where legitimate and commercially realistic, can sometimes shift tax to a later period, helping to reduce the current tax year's liability.
Where to find the rules relating to corporation tax
For the latest detailed guidance on corporation tax rates, reliefs and allowances, HMRC's official resources are essential. Please visit:
The rules surrounding corporation tax can be complicated and subject to change, so it is important to seek professional advice from an accountant to understand how they apply to your company's circumstances.
How DWilkinson&Company can help
Every business is different, and the strategies above are just the start. Careful planning throughout the year, not just at year-end, makes corporation tax more predictable and usually reduces surprises.
If you'd like help navigating the corporation tax rules and making the most of available reliefs, get in touch with DWilkinson&Company. Our team can review your company's situation, identify opportunities to reduce your tax bill, and help keep your accounts and tax returns on track.