How to minimise your Corporation Tax bill

For many, business year-end can come with a sense of anxiety. Not only do you need to gather all the information needed to file your annual accounts, but you're also aware that you could be facing a hefty Corporation Tax bill. If this situation sounds familiar and leaves you wondering how to reduce your Corporation Tax bill, this blog offers some valuable advice.

Below, we will discuss some of the most effective ways to minimise your Corporation Tax bill. We'll also provide some tips on ensuring that you are claiming all of the deductions and reliefs you are entitled to. By implementing some of these strategies, you can take some of the worry out of your company's year-end and not pay more tax than you have to.

What is Corporation Tax?

Corporation Tax is a tax that all limited companies must pay on their profits. In April 2023, the main rate of Corporation Tax in the UK increased to 25%. By keeping clear and accurate accounting records, you'll have the information needed to prepare your Company Tax Return and work out how much Corporation Tax your business will need to pay.

5 ways to reduce your Corporation Tax bill

With the recent increase in the main rate of Corporation Tax, it is even more important to ensure your business is as tax-efficient as possible. There are several ways your business can reduce its liability. Here are our top five recommendations:

1. Claim all available deductions and reliefs

The first step to minimising your Corporation Tax bill is to make sure you are claiming all of the deductions and reliefs you are entitled to. A wide range of options are available, so it is essential to do your research and ensure that you are taking advantage of them all.

Some of the most common deductions and reliefs include:

Capital allowances: Capital allowances can be claimed on the cost of assets used for business purposes. These costs can be claimed as a one-off payment or gradually over several years.
Research and development (R&D) tax relief: If your business is involved in science or technology projects, it could qualify for R&D tax relief and receive a significant tax rebate.
Patent Box: If your business has made profits from patented inventions, you may be able to apply for a lower rate of 10% Corporate Tax on these via the Patent Box.
Venture Capital Schemes: If you invest in scaleup companies, you may be able to claim tax relief via the Enterprise Investment Scheme (EIS). There is also the similar Seed Enterprise Investment Scheme (SEIS), which offers higher levels of tax relief for investing in riskier early-stage startups.

2. Make sure you are using the correct structure

The structure of your business can have a significant impact on your Corporation Tax liability. For example, if you are a sole trader, you will be taxed on your personal profits. However, if you operate your business through a limited company, you will only be taxed on the profits that are distributed to you as a shareholder.

3. Invest in your business

Investing in your business can be a great way to reduce your Corporation Tax liability. When you invest in your business, you are effectively reducing your profits, which will reduce your Corporation Tax bill. Investment could include buying new equipment, expanding premises, or training staff.

4. Use tax planning strategies

There are several tax planning strategies that can be used to reduce your Corporation Tax liability. For example:

Transfer pricing - involves moving profits between different parts of your business to minimise your tax liability.
Offsetting losses - allows you to apply losses from previous years to future profits.
Group relief - can be used to offset the losses of one company against the profits of another company in the same group.

It is highly recommended to work with a certified accountant when implementing these strategies so they can be tailored to your specific circumstances and correctly align with the regulations.

5. Get professional advice

The best way to minimise your Corporation Tax bill is to get professional advice from an accountant. An accountant can help you understand the different tax reliefs and allowances available and advise you on the best structure and strategies for your business.

At Keith Graham, our experienced accountants provide effective tax advice and planning for businesses. We can help you implement tax planning strategies that minimise your tax liability while remaining compliant with the relevant tax rules.

Please get in touch to learn more about our services.