Nowadays, companies are searching for ways to reduce corporate tax liabilities. Corporations must comply with the correct corporate tax laws, but that does not mean that they should overpay. It is important for small business owners to have an idea that the corporate taxes are applied for the profits that the company gets.
However, not every business expense is tax-deductible; there are some that are exempted. Client entertainment can be considered as one such tax-exempted business expense. However, there are also plenty of costs that you are claiming can ensure that your corporate tax bill will be reduced.
8 top tips on how to reduce corporation taxes:
Pay early to HMRC
The first top tip is to pay HMRC on time. HMRC rewards the people who pay their corporate tax early with a small percentage interest of 0.5 percent.
An individual can apply within six months and 13 days after starting their accounting period at the earliest for paying their corporation tax. It means an individual will have to pay an initial sum of what they think is likely to be their corporate tax bill for the entire year.
If their accounting period runs from 1 January until 31 December each year, then the earliest they can pay is 13 June. The usual company tax return period of 9 months, and one day is the deadline to pay for this accounting period. It would be 1 October in the year following the end of their accounting period.
Invest in equipment & Plants
Organizations can benefit from the “Annual Investment Allowance” (AIA), which allows a corporation to obtain immediate tax relief up to a defined cap on acquiring specific business properties. The new AIA is £ 1 million, which ensures that businesses investing in qualified items will write off a large amount of investment against their earnings.
Research and Development claim
A government tax relief for innovation could miss out on your business. Your business may be liable for this tax relief if implementing new goods, processes or applications. For a £ 100,000 spent on research, this will equate to additional tax relief of up to £ 24,700. If the business makes a loss, they can claim a tax credit paid in cash.
Employee share scheme
Companies may gain a corporate tax deduction if they offer shares to their employees. The business earns profits from this tax-saving and can also provide claims to improve workers’ retention and inspire staff at the same time. There are many programs available to choose from, so it is essential to get advice on which one would better suit your company.
Claiming personal expenses for business
Any employee can claim expenses from the corporation on a tax-free basis, using statutory rates per mile to use their car for work.
- Up to an estimated 10,000 miles @ 45p
- At 25p above 10,000 miles
Contributions to Pension
On behalf of employees or directors, companies may generally receive a deduction from their revenues for pension contributions paid into pension schemes. Payments must be made by the end of the accounting period o seek relief. It is a reasonably simple way to minimize corporate tax, but consideration should also be given to individuals’ tax positions before making donations.
Work from Home Allowance
HMRC would encourage you to claim a portion of your home expenses during this pandemic when work from home is the normal new to cover the additional costs of lighting and heating the work area. There may also be higher costs for insurance, internet access, or telephone calls, etc. A £ 4 per week allowance from the employer is acceptable as a starting point.
Tax relief for creative industries
It may be more challenging for some sectors, such as those employed in the creative field, to apply for R&D tax credits. As an alternative, eight corporate tax reliefs unique to specific creative industries were devised by the government:
- Film Tax Relief
- Tax Relief for Animation
- Relief from Children’s Television Tax
- Theatre Tax relief
- Orchestra Tax Relief
The amount of additional deductions these businesses can claim is either 80% of the overall core expenditure, the amount of UK core expenditure or the amount of core expenditure on goods and services rendered by the European Economic Area (if applicable), whichever is less.
Tax is a dynamic, ever-changing area, and each business has a different circumstance and will therefore be liable, depending on their company, for certain exemptions or deductions. So, it is often a good idea to hire an accountant before implementing corporate tax deduction strategies.