Your corporate tax payments can be a consistent worry, no matter the size of your business. Understanding what corporate tax is and why you pay it is key to understanding how to lower the amount you’re liable to pay. So, what is corporation tax?
What is corporation tax?
Corporation tax is owed by all UK businesses. Just as your salary dictates how much income tax you pay, the profit your business makes annually will dictate how much corporation tax you pay. Since April 2016, the rate of corporation tax has been 19%.
Individuals are allowed some tax-free income allowance, but businesses are not. Every penny of profit is taxable, which is why it pays to know some key ways that you can potentially lower your bill.
How can you reduce corporation tax?
There are some important things you need to consider to keep your corporation tax bill affordable:
Can you claim R&D relief?
There are several Government-backed relief options for businesses that are involved in innovation. It’s worth checking to see if you qualify for Research and Development Allowances for paid research facilities and equipment, as these can cost a considerable amount.
Are you missing your deadlines?
Usually, a company has two years from the end of a previous accountancy cycle to claim tax relief, capital allowance, and other benefits. Make sure you know when the deadlines for claiming are, so you don’t miss out.
Are you investing enough?
If you qualify for the Annual Investment Allowance, you can claim relief on certain purchases of qualifying assets, such as plant and machinery, up to a given value. As of January 1st 2019, the AIA threshold is £1 million.
Do you claim all your expenses?
Make sure you’re not forgetting any business expenses from your accounting records. Many businesses incur expenses and neglect to claim the allowable ones through their tax returns; costing themselves money needlessly.
Are you contributing to pensions?
If your business has a pension scheme for employees, you could be able to discount the rate you pay against your overall profits. However, you must make any claimable payments before your accounting period ends.
Do you manage losses effectively?
There are different levels of relief available against company losses. You might be able to backdate them to a previous year to incur a tax refund or carry them forward to hold against future profits.
Work with corporation tax software
These are some key ways you can lower the amount of corporation tax your business pays. To ensure you’re aware of all possible corporation tax relief options, and what you have to do to qualify for them, implementing the right tax software can be invaluable. Get in touch with our team to learn more.