How to reduce your corporation tax legitimately

Paying less corporation tax doesn’t have to be a sensitive subject - there are many legal ways to reduce your corporation tax bill. This article will explain several ways in which your business can reduce the amount of tax you are required to pay each year.

From 1 April 2018, the UK’s corporate tax rate is 19%. This is almost the lowest in the G7 countries, which is good news for enterprise and useful for anyone thinking about starting a business. If that’s you then you should have a look at our interview with apparel brand founder, Brenda Smith who is based in Sussex, to learn some tips about starting your own business: Brenda’s Interview Link

1. Claim all allowable business expenses

It’s essential to understand what you can claim for as a business, and is a frequent question that we are asked. Of course as your accountants we make sure that you are claiming everything that you are allowed to, however it’s good to have in mind what is allowable. Expenses add up over the year so it’s crucial to claim for everything and create a culture in your business that sees this as an important part of running your company. In general, the following are broadly claimable:

• Office costs, stationery, phone bills, office furniture
• Travel costs, fuel, parking, train, plane and bus fares
• Clothing expenses such as uniforms
• Staff costs, salaries or sub contractors
• Items bought to sell on (stock / raw materials)
• Insurance, bank charges and other financial costs
• Business premises costs
• Advertising and marketing

The key rule is that anything you claim tax relief for must be ‘wholly, necessarily and exclusively’ for business use.

2. Annual Investment Allowance (AIA)

The Annual Investment Allowance or AIA allows a company to offset any spending on business assets against your corporation tax liability, up to the current threshold of £200,000.

For example if your profits for tax were £100,000 and you spend £50,000 on purchasing additional equipment you will be able to deduct £50,000 from your taxable profits before applying the 19% tax charge.

Use the link below to find out more:

https://www.gov.uk/capital-allowances/annual-investment-allowance

3. Creative industry tax reliefs

There are specific tax rules that apply to those businesses, which operate in certain creative industries. A company will qualify if it is directly involved in the production and development of:

• Certain films
• Animation programmes
• Video games
• Theatre
• Orchestral concerts
• Museum or gallery exhibitions

To qualify the company needs to gain a formal certification from the British Film Institute. More information can be found on the Gov.uk website here:

https://www.gov.uk/guidance/corporation-tax-creative-industry-tax-reliefs

4. Research & Development (R&D) tax credits

Your company may be eligible to claim additional tax tax relief if it has carried out research and development on innovative projects in science and technology. Reliefs are available of up to 235% of any R & D expenditure, depending on the nature of the costs incurred.

There is a detailed and specific application process, which we can help you with; to find out more visit the link below:

https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief

If you are a business interested in reducing your corporation tax in Sussex, Kent & the South East get in touch with our Managing Partner Melanie Richardson for a free no commitment meeting to discuss your options.

Melanie Richardson - Managing Partner

If you’d like to learn more about our approach to working with clients get in touch with Melanie directly on:

Email: melanier@swindellsaccounting.co.uk

Tel 01825 763366