Earlier this year, in one of the biggest reversals of tax policy in the last decade, the UK government raised the corporation tax main rate from 19% to 25%.
The new rate will see businesses earning over £250,000 in profit paying 25%, however, smaller businesses won't be required to pay the full rate.
Businesses with annual profits between £50,001 and £249,999 will be able to reduce their corporation tax bill by receiving a marginal relief of 26.5%. For a business with annual profits of £50,000 or less, the 19% rate will still apply.
The corporation tax laws in the UK are among the most complex in the world and now more than ever, businesses are looking for legal methods to lower their corporation tax liabilities.
In light of this, we’ve put together some tips on how you can lower your company's tax burden.
1. Claim ALL of your business expenses…
As a business owner, it's crucial that you declare each and every one of your expenses. While this may seem like a daunting task, expenses such as travel costs and office equipment soon add up over the course of a year.
Declaring every penny you spend on allowable expenses in your tax return will decrease your company's revenue and in turn reduce your tax burden.
Remember to keep a record of everything. Without proof, HMRC can refuse to accept your claim.
2. Utilise the Annual Investment Allowance (AIA)
The Annual Investment Allowance (AIA) is a government scheme in place for businesses buying assets that fall under the category of "plant and machinery."
Computers, office furniture, tools, and other equipment that you need to run your business all qualify for this allowance. The AIA provides 100% tax relief on expenditures from profits before tax.
All businesses including unincorporated companies are eligible for this allowance. The amount of AIA you can utilise currently stands at £1 million.
3. Surprise HMRC with an early bill payment…
It's important to keep in mind that HMRC will actually compensate you for paying your company tax bill early in the form of ‘credit interest’ if it's possible for you to do so.
HMRC will pay this interest no later than six months and thirteen days from the beginning of your accounting period. This is a great strategy for lowering your corporation tax bill, however, since your company year would still be in progress, the actual tax you pay would of course be an estimate.
4. Invest in research and development
If your company engages in any kind of research, development, or innovation, you may be passing up the opportunity to apply for tax relief under the UK government's research and development programme.
This government scheme offers tax relief to small and medium-sized enterprises (SMEs) in an attempt to encourage SMEs to invest in innovation and research in science and technology.
As this relief aims to stimulate growth and development in the UK, this scheme is very generous and businesses can significantly mitigate their corporation tax bill or even request a cash lump sum from HMRC.
5. Hire a proactive accountant
By calculating your company's income, identifying tax inefficiencies in your operations, and highlighting taxes that you do not need to pay, a proactive accountant can help to relieve your corporation tax burden.
Every business functions differently. Because of this, you need a skilled accounting professional to provide advice and support tailored to your specific needs.
For a professional, personal accounting service, get in touch with One Two One Accounts today.