It is the season to be far from jolly, as tax bills are now due for payment – and late payment will be met with substantial financial penalties. But although there’s no way to escape the tax net, there are legal ways you can reduce your liability and ultimately pay less corporation tax. Here are ten of the best:
1 Declare less profit.
Businesses are taxed on profit not turnover, so anything you can do to reduce your profits will decrease your corporation tax liability. For example, it could make sense to lease a luxury car through the business rather than pay for a private vehicle. Of course, you will pay personal tax on this benefit, but you could still make an overall saving. You can also set past losses against future profits, assuming your company has not changed hands.
2 Invest and claim tax allowances.
When you buy certain kinds of equipment and machinery, you can claim tax relief. In simple terms, this allows you to set the cost of the investment against current profits – meaning a substantial reduction in your corporation tax bill. The Annual Investment Allowance means you can set 100% of the cost of tools, computer, furniture and machines against profits, subject to a maximum of £200,000 a year.
3 Innovative businesses qualify for R&D tax relief.
If your business conducts research and development, or is judged as innovative, R&D tax relief can make a huge difference to your corporation tax bill. Since 1 April 2015, this relief has been set at 230% for SMEs – meaning that for every £100 of allowable costs, your corporation tax bill could be reduced by an additional £130. What’s more, “innovation” and “R&D” cover a lot more than you might think, so it’s worth making some investigations and seeing whether you can claim.
4 Make your vehicle fleet green.
Low emission cars attract 100% capital allowances, as well as being significantly cheaper to run and tax. By making your vehicle fleet green, you can make some huge savings on corporation tax.
5 Change your year end.
If you expect to make a loss during the current trading period, you can extend your last financial year to 18 months and set 6 months’ loss against 12 months’ profit. You will still have to pay corporation tax for the last 12 months, but sending in a 6-month return will enable you to claim some of the tax back.
6 Look at inter-company charging.
Small businesses are exempt from Transfer Pricing Rules, so they can charge each other fees. Alternatively, you can create a Group and claim Group Tax Relief, offsetting one company’s losses against the profits of another.
7 Run a home office.
Think your business is too large to have a home office? Think again. By operating a home office, you can charge your company rent – and reduce your corporation tax bill by the same amount.
8 Consider a salary sacrifice scheme.
Whilst this won’t actually cut your corporation tax, it will significantly reduce the national insurance contributions you pay. In simple terms, a salary sacrifice scheme allows you to offer tax-free benefits such as childcare vouchers, mobile phones or bikes to yourself and your staff in lieu of extra pay.
9 Repay your directors’ loan account.
If you have an overdrawn directors’ loan account at the end of the year and fail to repay it within 9 months, you will be hit with an extra tax charge of 25% on the balance. This can only be reclaimed when the directors’ loan has been repaid.
10 Make purchases at the right time.
Being tax-efficient sometimes isn’t about what you buy so much as when you buy it. Bring forward major purchases and you can significantly reduce your next tax bill, giving your cash flow a significant shot in the arm.
To learn more about how Cashsolv can assist with your cash flow and financing business growth, please visit our business finance page.