In the 2019/20 and 2020/21 tax years, UK Companies must pay Corporation Tax on taxable profits at a rate of 19%. This means that a company with £50,000 of taxable profits will pay £9,500 in Corporation Tax.
The UK tax system is known to be quite complex, so finding ways to legitimately reduce your Corporation Tax bill can prove to be tricky at times. At Bramleys, we understand that each company will have its own set of circumstances but there are still some nice easy wins to be had when trying to reduce your Corporation Tax bill.
- Claim every business expense – regardless of how small they are. Yes we know, nobody wants to keep track of every single receipt, but the rewards can add up very fast and result in a large batch of tax-deductible expense. Why not get in touch with us to find out how to make the best use of technology to make your receipt battles easier! What is classed as business expenses will vary from company to company so it’s best to have a competent accountant in your corner to help you.
- Directors should be paid a salary. Salaries are a business expense which means they are also tax deductible and will therefore lower your taxable profits. Directors usually take a tax efficient salary/dividend mix. Get in touch to find out the most efficient mix for your circumstances.
- Use a company mobile phone. Another nice and easy win. Transfer your mobile phone into the name of your company for a useful tax-deductible expense.
- Claim mileage expenses. This is one of the most underused expenses which often goes under the radar. Use of a company car can turn out to be very costly from a tax perspective and a useful alternative is to use your own car and charge the company mileage at 45p for the first 10,000 miles and 25p thereafter. Mileage expenses are tax deductable so the company will reduce its taxable profit.
- Explore the possibility of R&D tax credits. Depending on how your business operates, you could be eligible for R&D tax credits. This will entitle you to a tax deduction worth 230% of qualifying costs or, if the company is loss making you could claim a tax credit of 14.5% of any loss that is surrendered.
- Set up a pension scheme. Payments into a pension scheme will give you a double win as they are tax deductible and helps directors save for the future!
- Purchases! If you need a new piece of equipment, the most tax efficient way to purchase them is via your company. This can work for small items like computers, laptops, phones and large items such as machinery. For large items, you can make use of the Annual Investment Allowance. The current allowance £200,000.
- Patent Box Tax Relief – if your company earns profits from a patent it holds, you can apply for patent box tax relief which will allow tax to be paid at 10% as opposed to 19%.