Businesses aiming to get back onto a profitable footing will be looking at how they can cut costs.

Corporation Tax (CT) is one area where there are often savings to be made. Here are some quick tax-saving tips to consider. 

Allowances and reliefs

You can deduct the costs and expenses of running your business from your profits before tax when you prepare your company’s accounts. 

CT is based on the profits you earn and not turnover, so this is often an easy way to reduce your annual bill. 

This will become all the more important from April 2023, when the rate of tax you pay (between 19 – 25 per cent) is based on your company’s profitability on a sliding scale. 

Capital allowances

Capital allowances, such as the Annual Investment Allowance and Super-Deduction, offer tax relief of up to 130 per cent if you buy assets that you keep to use in your business, for example:

  • Equipment
  • Machinery
  • Business vehicles – for example, cars, vans or lorries

Research and Development (R&D) Relief

Research and Development (R&D) tax credits can be claimed by a range of companies that seek to research or develop an advance in their field. It can also be claimed on projects that make a loss. 

Around £5 billion a year is claimed by businesses but estimates suggest much more goes unclaimed by eligible companies.  

The Patent Box

This is designed to encourage companies to keep and commercialise intellectual property in the UK. 

If your business makes profits derived from patented inventions, you could look to claim relief and pay an effective lower rate of 10 per cent CT on those profits.

Creative industries relief

If your company makes a profit from theatre, film, television, animation or video games, eight tax reliefs apply to certain qualifying companies. 

These can offer a significant reduction to the amount of CT you pay if you work in these industries. 

Relief on goodwill and other relevant assets

These might include customer relationships and unregistered trademarks. You can now get relief on purchases made on or after 1 April 2019 if the:

  • Goodwill and relevant assets are purchased when you buy a business with qualifying intellectual property (IP)
  • Business is liable to CT
  • Relevant assets (including goodwill) are included in the company accounts.

Terminal, capital and property income losses

If your company or organisation is liable for CT and makes a loss from trading, sale or disposal of a capital asset or on property income, then you may be able to claim relief from CT.

Claim on all business expenses

Directors, in particular, should not be out of pocket by incurring expenses and then failing to claim them back through the accounts. They should also look to use their personal allowance effectively, by drawing a tax-efficient combination of salary and dividends from the business. 

Pension contributions

Businesses should be able to claim a deduction from their profits for contributions paid into pension schemes. Payments must be made before the end of the accounting period to obtain relief.

Share scheme deductions

CT relief is often available when offering share schemes to employees. There is a number available, including Enterprise Management Incentive (EMI) share schemes. These also offer a tax-efficient form of remuneration for employees, which can help with retention without forcing up salaries. 

Business losses

If you make a loss from trading, the sale or disposal of a capital asset, or on property income, you may get CT relief by offsetting the loss against your other gains or profits of your business in the same accounting period.

You can also choose to carry the loss back, if you do not it will be carried forward to another accounting period

Subscriptions and training costs

These can be deductible and providing they relate to the activity of the company, training and subscription costs can be paid for by the company without the benefitting employee suffering paying more income tax. 

Funding a staff party

Everyone loves a party and businesses can claim up to £150 per head for an annual staff party, which can be tax-free for the employees and tax-deductible for the company. 

Don’t miss out on claims by missing deadlines

Companies normally have two years from the end of an accounting period to claim certain tax reliefs, such as R&D tax reliefs, capital allowances and patent box relief.

If you have questions regarding corporate tax rules and reliefs, please contact your Seymour Taylor representative today or email or call 01494552100.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 8 December 2021.

Posted in Blog news.