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How to Reduce Your Corporate Tax in the UK (legally)?

Businesses regularly look for ways to reduce the corporate tax they pay. It is important for companies to follow the correct corporate tax rules, but that doesn't mean they have to pay too much. The UK tax system can be confusing, but there are a few ways to legitimately lower the corporate tax burden. All you need is an understanding of how the UK tax system works, a little organization and some time to plan your finances effectively.

Corporate tax is currently 19% and has been steadily declining in the UK over the past few years which is attractive for businesses, but there are still ways to reduce this amount further. Here we discuss 12 ways to lower corporate taxes.

How to Reduce Your Corporate Tax in the UK

1) Don't Forget to Pay Yourself a Salary

When you only run a limited liability company, it can sometimes be easy to forget that your company is a separate legal entity - your company's money isn't yours! So to put it in your pocket, you have to pay yourself a salary.

Salary is a business expense that reduces profits and business taxes. So, before it's time to pay taxes on your profit, pay yourself!

2) Keep Accurate Records and Find out the Deductions

By keeping extremely accurate records and learning about potential deductions, you can reduce your taxes and avoid tax audits. There are a number of tax deductions that you may not be aware of. It is important to research the deductions thoroughly and keep track of everything. A little knowledge and careful accounting can help reduce your tax liability.

3) Claim Car Mileage

Another claim that can easily be overlooked is the car's mileage. It may be more tax-efficient for business owners and staff to use their own vehicles and claim mileage using HMRC's officially authorized mileage.

Each company employee can charge up to 10,000 miles per year for business travel at 45 cents per mile. For just over 10,000 miles, that's 25p. The company is deducted from profits for the amounts it pays to employees.

4) Claim Your Work From Home Allowance

As the world moves toward a more flexible approach to work, now is the perfect time to take advantage of the work from home schedule. If one of your employees works from home, HMRC allows you to claim a portion of the household expenses to cover the additional cost of heating and lighting the work area.

5) Don't Forget to Claim All Business Expenses

It may seem obvious, but don't overlook expenses from your accounting records. We often find that the directors themselves incur expenses on behalf of the company but do not claim them in the accounting records.

6) Pay Early

It's true that if you can manage your tax affairs and pay your corporation tax bill early, HMRC will pay you back some of it in the form of interest.

7) Hire An Accountant

Once you have an idea of ​​your business plan, an accountant can help you determine what type of business is best suited to minimizing your short-term and long-term taxes. For example, you may plan to start as a single-member LLC but plan to hire an associate in a year or two as your business grows. However, if you intend to quickly expand your market and sell your business, it may be more efficient to incorporate and file a Class C corporation. Tax law restricts the types of owners for certain businesses, and an accountant can help you determine these. limitations. Accountants know the ins and outs of tax return preparation and can help you determine the most efficient structure for your business plan and identify allowable deductions.

How to Reduce Your Corporate Tax in the UK

8) Use Company's Phone

If you or your employees regularly make business calls on their personal cell phones, consider using work cell phones instead. The employee does not incur telephone expenses, line rental or calls and the company receives a tax deduction for their expenses.

9) Apply for Tax Relief from the Patent Box

If you have a patented invention, you may be eligible for the patented tax credit, which allows you to pay a reduced 10% corporate tax rate on the profits you make from your patented product.

10) Pension Contributions

Companies can generally take a deduction from their profits for pension contributions paid to pension plans on behalf of employees or directors. Payments must be made before the end of the billing period to receive any relief. This is a relatively easy way to reduce corporation tax, although the personal tax situation of individuals should also be considered before contributing.

11) Organize a Christmas Party for Employees

It seems strange that hosting a Christmas party can be tax-efficient, but if you stick to the guidelines. If all staff are entitled to an annual party costing less than £150 per person, then there is no in-kind benefit and the company can claim a deduction for their expenses.

12) Don't Miss Any Deadline

Businesses typically have two years from the end of an accounting period to claim certain tax relief, such as, businesses need to make sure they fully exercise their right to these benefits before it's too late.

The Secret to Lowering the Corporate Tax Bill

So the big secret to lowering corporate income taxes is that there's no secret. It just takes diligence, a little knowledge of the tax system, and a few minutes a month to ensure your business expenses are accounted for correctly. Getting the right advice at the right time is key, and as a small business expert with over 10 years of experience and the help of over 1,000 people, Pro Tax Accountant is here for you and your business.

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