Corporation Tax is a tax levied on companies’ profits. The current tax rate is 19%; it has remained the same since 2017. Below are 4 tips to help you in reducing the amount of corporation tax you pay.
PAY YOUR SALARY
If you are running a limited company on your own, it is important to know that the money your company has is not yours. Therefore, do not forget to pay yourself a regular salary.
A salary counts as a business expense, therefore reducing your profit and Tax Liability. So make sure you pay your salary before the Corporation Tax payment deadline!
CLAIM ALL YOUR EXPENSES
It can be very time consuming and stressful claiming every little expense but over the year they tend to add up to quite a big amount. So claiming every allowable expense possible will reduce your Tax Liability even further.
MAKE PURCHASES THROUGH YOUR COMPANY
If you need to purchase anything for your business, make sure you purchases it through your company and not by yourself.
In addition, take advantage of the Government’s Annual Investment Allowance as it can reduce your Tax Liability massively. This is a way of businesses’ making investments and categorising them in “Plant and Machinery”. The current Annual Investment Allowance goes up to £1 million (1st January 2019 – 31st December 2020).
However, there certain things that do not count as plant and machinery. These are;
- Products you lease
- Buildings or water and gas systems
- land and structures
- anything used for business entertainment
The following count as plant and machinery;
- items kept in your business, e.g. – cars
- costs of getting rid of plant and machinery
- integral features
- fixtures such as kitchens or bathrooms
- changes to buildings to install other plant and machinery
PAY HMRC EARLY
If you decide to pay your Corporation Tax early to HMRC, you will receive interest on the amount you have paid. The current interest rate is 0.5% and HMRC will usually pay this interest from the date you pay your Corporation Tax to the payment deadline. The earliest date they’ll pay interest from is 6 months and 13 days after the start of your accounting period.
RESEARCH AND DEVELOPMENT TAX CREDITS
Research and Development (R&D) tax credits are a tax relief available to companies who incur expenditure on innovation.
To find out how this can help reduce your Tax Liability, check out our previous article on Research and Development.
At Kala Atkinson, we have years of experience with giving tax advice. If you need help or more advive on any of the above, get in touch today.