8 Ways to reduce Corporation Tax

We'd all prefer to pay fewer taxes.

However, wanting to and actually doing so are two completely different things. The ability to reduce your tax liability is a difficult concept to grasp. Most people will want to pay their fair share of taxes while not paying too much.

Fortunately, there are several legal ways to reduce your corporation's tax liability.

But, what is corporation tax? We'll look more closely at the definition and the eight ways to reduce corporate taxes.

Are you going into your next significant business choice with caution? How about some insights that actually come in handy? The topic at hand is a review of your financial records performed once a year. It's possible that you wasted money on projects and assets that didn't bring in enough money to cover their costs. Don't keep making the same errors again and over. Talk to our best small business accountants to increase your revenue base.

What Exactly Is Corporation Tax?

Corporation tax is a type of tax paid by limited companies in the United Kingdom. It is based on the annual corporate profits generated by a business or company.

Corporation tax specifically applies to the following for a limited company:

• Trading profits: Profits earned from doing business.

• Profits from business investments are referred to as investments.

• Selling Assets: Any asset sold for a chargeable gain, such as land, property, shares, or machinery.

The corporate tax rate in the United Kingdom is currently set at 19 percent for all business profits in the fiscal year 2021/2022. This means that if a company has a taxable income of £100,000, their corporate tax bill will be £19,000.

The Chancellor announced a change in the corporate income tax rate beginning in April 2023. If your profits exceed £250,000, you will be subject to a maximum corporate tax rate of 25%. However, if your profits are less than £50,000, you will still be taxed at the lower corporate rate of 19%.

8 Ways to Reduce Your Corporate Tax

There are several methods for lowering your business taxes. Some examples are:

1. Apply for R&D Tax Credits

You can claim research and development tax relief if your company pays technical staff to solve technical problems. This can amount to up to £25,000 for every £100,000 spent on innovation.

2. Purchase Plant and Machinery

The Annual Investment Allowance, or AIA, is available to any company. This allows businesses to claim immediate tax relief on certain business asset purchases.

AIA currently has a limit of £1,000,000. This means that businesses that invest in qualifying items can deduct a significant portion of their costs from their profits.

3. Property Capital Allowances

As of April 2020, businesses can claim a 3% allowance on new commercial building expenditure. Any building purchased before this date can be reviewed to see if it qualifies for capital allowances.

4. Submit a claim for all business expenses.

Although it may appear obvious, businesses frequently overlook certain expenses in their accounting records. It's critical to keep track of all business expenses so you can claim them at the end of the fiscal year.

Keeping track of every single expense may seem tedious, but over the course of a year, those purchases can really add up.

5. Reimburse Owner Salaries

If you own your own business, remember to pay yourself a regular salary. It's easy to forget that your company is a separate legal entity. As a result, make sure you pay yourself a salary, which will reduce your profit. As a result, your Corporation Tax will be reduced.

6. Keep Track of Payments

If you pay your Corporation Tax bill early, HMRC may refund some of it to you in the form of interest on your original return.

7. Pension Benefits

Contributing to your or your employees' pensions through a limited company is a tax-deductible expense. It's also a tax-efficient way to save for retirement, so take advantage of this tax break.

8. Request Business Mileage

If you or any of your employees use their personal vehicle for business purposes, you can claim tax-free reimbursement from the company.\

CruseBurke best Accountants in Croydon has been providing assistance to local businesses. Yes, we can trace our roots all the way back to World War II, and we take great pride in our age.