Reducing your corporation tax bill

When taxes are involved, dealing with your company’s finances may seem like a mountain to climb for many business owners. They usually ask the same question when they look more closely at their tax and expenditure records: “How can we reduce our corporation tax bill?”

Firstly, how much corporation tax do businesses have to pay?

With the current rate of corporation tax at 19% on company earnings, a business with a yearly profit of £100,000 would owe £19,000 in tax.

However, claiming every possible cost and deduction, as well as providing a more precise picture of the company’s income, is critical if you want to pay the bare minimum of corporation tax.

Even though every company setup is unique, there are a few fundamental guidelines that all business owners should consider in order to keep costs as low as possible. Below, you’ll find some of our most useful and tax-efficient tips…

1. Claim every allowable business expense

Claiming all legitimate business costs, no matter how small, is one of the simplest ways to reduce a company’s tax bill. Sure, it’s tedious to have to keep track of every £5 rail ticket or £3 bundle of pens. However, these expenses do build up over the course of a year and therefore should be deducted as expenses.

All you need to do is keep on top of your business’s finances. Keep in mind that the rules set out by HMRC require all business costs reported to have been spent solely and exclusively for business purposes. Here are some of the instances of allowable business expenses that you shouldn’t forget to claim:

• Employee wages and salaries
• Employee benefits, such as pension contributions or bonuses
• Payments to consultants, contract workers, or freelance suppliers
• Communication costs, including telephone bills and broadband charges
• Rent and rates for your premises, plus any maintenance or cleaning costs
• Energy and utility charges
• Insurance premiums
• Office costs, such as stationery and office supplies, and equipment hire
• Accounting and some other professional fees
• Travel costs

2. Pay yourself a salary

Remember that your limited company is a separate legal entity in its own right that is separate from your personal finances: the money it possesses is not yours.

Therefore, you must give yourself a regular wage if you want to withdraw money from the limited company. Salaries are company costs that lower your taxable income and the corporation tax you owe. If you want to avoid having to pay taxes on your earnings, you should pay yourself first.

3. Make big purchases through your company

Need a new desk, phone, or laptop for work? Don’t buy them yourself, buy them through your company! This is the most tax-effective method of purchasing new equipment. If assets qualify for the Annual Investment Allowance, you could get up to 130% tax relief on the purchase.

4. Claim your work from home allowance

Now is a great time to take advantage of the work from home allowance scheme, as the movement toward more flexible working continues to gain momentum throughout the globe. You can deduct some of the costs of heating and lighting a home office from your tax liabilities thanks to HMRC’s home working allowance.

You may deduct any tools, services, or materials you provide your remote workers, as well as any costs they incur for internet connection, gas, or electricity.

5. Pay early

HMRC will grant you part of your Corporation Tax payment in the form of interest if you manage your tax affairs well and are able to pay it off early.

If you need help lowering your corporation tax bill, get in touch with our corporation tax experts, and we will help you be as tax efficient as possible.