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8 Ways to Reduce your Corporation Tax Bill

Corporation Tax is a tax levied on companies' profits. The current tax rate is 19% for companies making profit of £50,000 or under and 25% for profits above £50,000 with marginal relief available for profits between £50,000 and £250,000. Below are 6 tips to help you in reducing the amount of corporation tax you pay.

1. 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!

2. Pay yourself a Pension

Pensions are a tax deductible expense for a company but also not taxed on the receiver until drawn down upon retirement. There are a number of different types of pension other than the more commonly known auto-enrollment pension.

3. Work from home expense

As a business owner you can claim £26 per month without justification if you work from home, if you think your expenses from working from home maybe more than this then you can claim a proportion of your home expenses or have a contract with your business to expense more.

4. Mileage Allowance

Mileage allowance payments (MAP's) are a HMRC approved amount you can pay from your business if you or your staff use their own vehicle for business purposes. Keep a track of mileage incurred and multiply this by the approved rate:

5. 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. Having efficient and automated processes in place to collect and process expenses can help ensure you claim all your expenses and reduce the time spent collecting them.

6. 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. Also plan ahead to ensure expenditure is made in the correct financial year

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’ writing off investments 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

7. 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.

8. 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.

If you want to know more about the above or discuss a tax review, get in touch today!

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