Corporation tax is an inevitable part of doing business, but that doesn’t mean you can’t be smart about managing it.
With the right techniques, you can effectively reduce your corporation tax bills while staying compliant with HMRC regulations.
This guide will provide practical, proven strategies for reducing your corporation tax bill, from maximising allowable expenses to tapping into often-overlooked tax reliefs.
Whether you’re a small start-up or an established enterprise, these tips can dramatically reduce your tax bill.
Key Strategies to Reduce Corporation Tax
There are numerous legitimate ways to reduce corporation tax, ranging from the well-known to the more niche and lesser-utilised.
Let’s begin with several tried-and-tested strategies almost every business can implement.
1. Claim All Allowable Expenses
One of the most straightforward methods to lower your tax bill is to claim all allowable expenses.
These are costs incurred wholly and exclusively for business purposes.
By deducting these expenses from your revenue, you reduce your taxable profit and, consequently, your corporation tax.
Common allowable expenses include:
- Office costs (rent, utilities, stationery, phone bills, internet charges)
- Travel expenses
- Staff costs (salaries, bonuses, pensions, benefits)
- Training courses related to your business
- Marketing and advertising costs
- Financial costs such as bank charges and insurance
- Professional fees (accountants, lawyers, consultants)
Remember to keep accurate records of all expenses. This ensures you don’t miss out on any deductions and provides evidence if HMRC queries your claims.
A quick note: Don’t assume HMRC won’t look at your expenses or that they reserve compliance checks for larger businesses.
In fact, HMRC has been ramping up checks into small businesses and brought in a huge £5.8bn from investigations into individuals and small businesses in 2022/2023.
2. Maximise Capital Allowances
Capital allowances are a powerful tool in your tax-saving arsenal. They allow you to deduct the cost of certain assets from your profits before tax. Here’s where you can really make a difference to your tax bill if you’re investing in your business.
Key allowances to be aware of include:
- Annual Investment Allowance (AIA): This allows you to deduct the full cost of most plant and machinery up to £1 million per year. It’s a significant relief if you’re making major investments.
- Full Expensing: Introduced from 1 April 2023, this allows companies to claim 100% first-year relief on qualifying main rate plant and machinery investments.
- First Year Allowances (FYAs): Available for certain environmentally friendly assets, FYAs let you deduct the full cost from your profits before tax in the year of purchase.
- Writing Down Allowances (WDAs): For assets not covered by AIA or FYAs, you can claim WDAs at 18% for main rate assets and 6% for special rate assets.
- Structures and Buildings Allowance (SBA): This allows you to claim 3% per year on the cost of constructing, renovating, or converting non-residential structures.
When planning major purchases, consider the timing carefully. Buying assets just before the end of your accounting period could allow you to claim the allowances earlier, potentially reducing your tax bill for the current year.
3. Utilise Research and Development (R&D) Tax Credits
If your company is involved in innovation, R&D tax credits could substantially impact your tax bill.
Many businesses overlook this relief, thinking it’s only for tech companies or scientific research. In reality, it’s much broader than that.
R&D tax credits can apply to any company that’s working to resolve scientific or technological uncertainties.
This could include developing new products, processes, or services or improving existing ones.
The tax relief available can be substantial, potentially allowing you to deduct up to 230% of qualifying costs from your yearly profit.
To claim, you need to demonstrate how your project:
- Sought an advance in science or technology
- Had to overcome uncertainty
- Tried to overcome this uncertainty
- Could not be easily worked out by a professional in the field
Keep detailed records of your R&D projects, including work undertaken, costs involved, and how the work meets the criteria.
It’s worth the effort to claim this relief – it could greatly reduce your corporation tax bill.
Double Point can help you claim R&D tax relief – head here to learn more.
4. Strategic Timing of Income and Expenditure
Timing is everything in business, and that’s especially true when it comes to tax planning.
With smart planning around when you receive income and incur expenses, you could reduce your corporation tax bill.
Here are some strategies to consider:
- Accelerate expenditure: If you’re planning a large purchase, consider making it just before the end of your accounting period. This way, you can claim the expense in the current tax year.
- Delay income: Where possible, consider delaying the invoicing of some sales until after your year-end. This pushes the income into the next accounting period.
- Bring forward income: Conversely, if you’re having a low-profit year, you might want to bring forward some income to use the lower tax rate.
- Pay bonuses: If you plan to pay bonuses to directors or employees before year-end, doing so can reduce your profits for the year.
Remember, while these strategies can be effective, they should be part of a broader business strategy, not just for tax purposes.
5. Use Losses Effectively
If your company makes a loss, it’s not all bad news from a tax perspective. You can use these losses to reduce your corporation tax bill. Understanding how to use losses effectively can significantly impact your tax position.
You have several options for using losses:
- Carry the loss back: You can carry trading losses back to the previous 12 months. This can be particularly beneficial if you paid tax in the previous year, as you may be able to claim a refund.
- Carry the loss forward: You can carry trading losses forward to set against future profits from the same trade. There’s no time limit on how long you can carry losses forward.
- Set the loss against other income: If your company is part of a group, you may be able to surrender the loss to another group company.
- Terminal loss relief: If your company stops trading, you may be able to carry back any trading losses from the final 12 months to set against profits from the previous three years.
Niche and Lesser-Known Tax Relief Opportunities
While we’ve covered the main strategies to reduce corporation tax, there are also some more specialised opportunities that might apply to your business.
- Patent Box: If your company earns profits from patented inventions, you might be eligible for a lower rate of corporation tax under the Patent Box scheme.
- Share Schemes: Implementing employee share schemes like Enterprise Management Incentives (EMI) or Share Incentive Plans (SIPs) can provide tax benefits for both your company and your employees.
- Creative Industry Tax Reliefs: If you’re in sectors like film, animation, video games, or theatre, you might be eligible for specific tax reliefs designed for these industries.
- Land Remediation Relief: Companies that clean up contaminated land or buildings may qualify for this relief, which provides an enhanced deduction of up to 150% of the qualifying expenditure.
The Bottom Line On Minimising Corporation Tax
There are many strategies for minimising corporation tax, and many (if not the majority), are underutilised. Remember, reducing corporation tax within HMRC rules is perfectly legal.
Combining the techniques listed here can completely change your Corporation Tax bill, resulting in tangible savings and other operational improvements.
Tax law is complex and ever-changing, so seeking professional advice tailored to your situation is essential.
At Double Point, we can help you and your business reduce its tax bill using compliant strategies like those listed here.
Our team of experienced accountants can review your circumstances, ensure you’re claiming all eligible reliefs, and help develop a tax-efficient business strategy.
Why not book a consultation with us? Let’s work together to keep your business tax-efficient, fueling long-term growth.
