Paying taxes is nobody’s favourite task, but it’s a necessary evil, especially for large corporations. Limited companies and foreign organisations with local branches need to pay corporation taxes. It’s also essential for other profit-making unincorporated entities to trade profits, investments, and gains from asset sales.
We expect to see the corporation tax bill rise in the following year. While it may not be a problem for big companies, this can be a material issue for small business owners. Fortunately, our tax accountants compiled six tips to reduce your corporation tax bill while remaining tax efficient.
1. Claim Research and Development Tax Relief
Research and development is a corporation tax relief suitable for organisations participating in advanced science and technology research and development. It’s also ideal for companies who want to advance in any industry based on their projects. This tax relief highly depends on the company’s size.
If you want your project to claim this tax relief successfully, you must ensure that the project had and tried to overcome uncertainty and looked for ways to advance in science and technology. It must also be a complex project that nobody can quickly work out.
2. Get a Patent Box Tax Relief
A patent box tax relief encourages companies to house their intellectual properties in the UK and distribute them for commercial use. You’ll have a lower CT rate if your company profits through patented inventions.
However, you must ensure your company owns or has exclusively licensed in-patents, undertaken patent-qualifying development, and they’re liable for paying the corporation tax bill. It must also present the profits resulting from patented assets.
3. Use Annual Investment Allowance
An annual investment enables companies to reduce their corporation tax and plant and machinery investments to a specific profit threshold before tax.
Your business can qualify for this corporation tax relief by ensuring the resources you spent for items will meet the requirements for being categorised as plant and equipment. These include demolition costs for plant and machinery, integral features of the building, fixtures, and alternations. You must also ensure that these items are for business use.
4. Pay Yourself a Salary
When forming a limited company, you must always remember the concept of separate entity because it treats the business as a legal entity. The company’s transactions will be more discrete.
You can help reduce the business’s corporation tax burden by paying yourself a salary. However, speaking to your tax accountant is crucial to ensure you’re doing it right. Otherwise, the HMRC will treat the total amount as salary, increasing your NIC liability and income tax.
5. Claim Allowable Expenses Timely
You can minimise your corporation tax bill by recording all company expenses and using them to minimise profits. Your business expenses must be wholly and exclusively for the company to consider them tax-deductible.
The HMRC may also consider the business expenses’ reasonableness and fairness before approval. Companies can get claims for certain business costs, such as salaries, equipment, employee expenses, professional license payments, utility bills, assets and asset disposal costs, and legal and professional fees. Entertainment expenses may also qualify for this tax relief.
6. Get Creative Industry Tax Relief
Companies can claim a creative industry tax relief if they’re directly involved in producing films, television programmes, video games, theatrical shows, orchestral concerts, and museum or gallery exhibitions. They must also be liable to pay corporation tax and directly negotiate for contracts, rights, goods, and services.
They must also be certified as British and pass the cultural certificate to get a license from the British Film Institute.
Paying taxes can be daunting for most companies, but they’re necessary to ensure your business’s health and avoid legal trouble. Finding ways to reduce your corporation tax bill and consulting a reputable tax accountant can help you make informed decisions for your business.
If you need a tax accountant in Bolton, look no further than YRF Accountants Ltd.! We are an accounting firm ready to take care of your business’s taxation needs. Contact us now, and let’s help you run a more efficient company!