8 ways to reduce corporation tax [a guide]

It is no secret that the regulations surrounding corporation tax in the UK are some of the most complex you could come across. Navigating these rules and regulations can be complicated for many business owners.

What is corporation tax?

Corporation tax is a direct tax charged on the profits of businesses or corporations in the UK. The tax rate can vary depending on the level of corporate income, so those who have a higher income will be subject to a higher level of corporation tax. Businesses, otherwise referred to as corporations, have a requirement to calculate their taxable income by deducting any allowable expenses from their revenue.

8 ways you could reduce corporation tax

1. Pay yourself a tax-efficient remuneration

Being the owner or director of a limited company, you reduce the amount of corporation tax by carefully structuring your renumeration. You can do this to include a combination of salary, bonuses and allowable benefit contributions. By aligning these forms of renumeration with business expenses, you can optimise your take-home pay.

2. Claim your cost of sales

By claiming the cost of expenses that are incurred for your business, you could find that you are able to lower your corporation tax. This can include costs of materials, marketing and promotional activity and the general operation of your business. By doing this, you will be able to account for all the money spent on the company which could help to reduce the amount of taxation owed.

3. Claim work-from-home allowances

The Coronavirus pandemic played a pivotal role in allowing businesses to recognise the benefits that come alongside remote working. The shift of employees of all levels moving to work from their homes has resulted in a large number of businesses adhering to a hybrid way of working. If you do work from home, it is crucial that you recognise that the costs incurred are likely to surpass the fixed allowance. Due to this, it is important to provide receipts and calculate costs for factors such as heating, lighting, broadband and telephone charges. Due to using your home as for professional purposes, your company will have to pay realistic commercial rent.

4. Training and development

Implementing training and development programmes within your business won’t only present the advantage of deducting related expenses, but also offer substantial non-tax related benefits. These investments could ensure that you are able to create and benefit from a more proficient and skilled workforce.

5. Set up an employee share scheme

Setting up an employee share scheme can introduce beneficial business perks. It is also common for some schemes to allow companies to lower their tax bill by claiming on set-up costs. Not only will this motivate employees through ownership, but will create a safe, tax-smart way for businesses to improve their finances whilst simultaneously boosting staff loyalty.

6. Set up a company pension fund

Establishing an employee share scheme can introduce a range of significant advantages for your business. There is also a collection of schemes that enable a reduction in liability for corporation tax. This occurs by allowing business owners to claim any costs or expenses associated with the setting up and launch of the scheme.

7. Make use of business losses

When your business experiences a trading loss, you could use this to your benefit as it can decrease the cost owed on your current corporation tax bill. If allowable taxes are high in this same tax year, you’ll have the ability to carry the loss forward, benefitting the profit of future tax years and reducing your corporation tax bill henceforth. By taking this approach, you can navigate the relationship between losses, expenses and taxation to form the strongest financial strategy.

8. Maximise capital allowances

If you find that you are required to invest in assets such as plant, machinery or other equipment that is essential for your business, you’ll find that you are able to claim capital allowances. You can claim these as an annual investment allowances or for each individual year that you own the assets, depending on the type. These allowances will provide a means to recover a portion of the capital expenditure acquired during the owning of these assets.

We provide advanced accountancy services that give support, confidence and knowledge in corporation tax. With three practices across the South East, we have a wide team with a broad range of knowledge on hand to provide financial aid to you and your business. Get in touch with a member of our Bells Accountants team today to find out how we could help.