We’ve put together 5 ways to help reduce your corporation tax.

What is a corporation tax return?

A corporation tax return is the financial information most businesses submit to HMRC each year to report on their profit, losses and other factors relating to their tax liability.  

This information is then used to determine how much, if any, a limited company owes in corporation tax. The corporation tax a business is expected to pay is based on the amount of profit or loss in its annual accounts.

The main rate of corporation tax for financial year 2022/23 sits at 19%. This means if a business generates £100,000 in taxable profit for the year, it will be required to pay £19,000 to HMRC. 

While there’s no way of reducing the above rate, there are steps you can take and tax relief to take advantage of to help bring that final figure down.

1. Claim Research and Development (R&D) tax credits

Have you contributed to the creation or improvement of any products, services or processes? 

If so, you’ll likely be eligible to claim R&D tax credits. 

An R&D tax claim can come in 2 forms – a reduction in corporation tax or a lump-sum payout from HMRC. 

The qualifying criteria is very broad, and many businesses of all shapes, sizes, and sectors have the potential to be eligible and save thousands.

For more information on claiming R&D tax credits, read our jargon-free guide. Alternatively, get in touch with one of our specialists to find out if you’re eligible.

2. Claim all eligible business expenses

While it may seem like a tedious task claiming items as small as a £3 pad of paper, these items can add up over the course of a year and deliver a bigger tax saving than you’d expect. The list of items your business can claim on is extensive, ranging from work phones up to company cars. 

View the full list of tax-deductible expenses and benefits.

3. Claim capital allowances

When purchasing new equipment for your business such as a new laptop or mobile phone, purchasing them through your company is the most tax-efficient way to do this when you utilise capital allowances. In a nutshell, capital allowances are a way of saving tax when your business purchases a capital asset (a piece of company property that plays a significant role in the day-to-day running of your business). 

Super-deduction

As well as this, you may be eligible to claim super-deduction capital allowance when you invest in brand new plant and machinery for your business up until 31st March 2023. If your assets qualify, you could receive 130% first-year relief on qualifying main rate plant and machinery investments, meaning for every £1 you invest, your taxes will be cut by up to 25p.

To claim this before the deadline runs out, get in touch with one of our specialists.

Annual investment allowance (AIA)

If you’re looking to purchase larger equipment for your business, it’s worth taking advantage of the government’s annual investment allowance (AIA). This scheme allows you to deduct the full value of a qualifying item from your profits before tax. You can claim AIA on most plant and machinery up to the AIA amount, which currently stands at £1 million until 31st March 2023.

Items that you keep to use in your business

There are other forms of capital allowances, including ones that allow you to claim on structures and buildings. Get in touch with one of our tax specialists to find out more.

4. Claim all available allowances/reliefs 

There are several corporation tax reliefs available, some industry-specific while others are relatively general and can be applied to most businesses. These include: 

Work-from-home allowance 

Many businesses are now adapting to include hybrid or fully remote working. While the cost of running business premises will naturally go down as a result, many workers will incur additional costs when heating and lighting their home/work area. This is where the government’s working-from-home allowance comes in. HMRC allow you to claim a portion of your remote employee’s at-home expenses, including any equipment, services or supplies you provide. As well as this, expenses such as wifi, gas, and electricity can also be claimed. 

To find out of you’re eligible, get in touch.

Patent Box scheme

If your business generates profit from your own patented product, you may be eligible for a lower rate of corporation tax. This is where HMRC will apply a lower corporation tax rate of 10% to all profits earned from your intellectual property. 

If you think you may be eligible, or make a profit from your own patented product, get in touch with one of our tax specialists. 

There are more industry-specific corporation tax reliefs available for a handful of business types. Talk to our tax specialists to find out more. 

5. Make pension contributions

Paying company profits towards your employee’s pension schemes is one of the easiest ways of reducing your corporation tax bill. Tax relief is given to businesses that claim their private pension contributions as an expense, as long as they have been made wholly and exclusively for business purposes. To receive this relief, businesses must ensure these payments are made before the end of their accounting period. 

Is your business making private pension contributions? Get in touch to learn how you could save money.

There are many other methods of reducing your corporate tax bill, with some specific to your industry and situation. Aston Shaw has decades of experience recognising these opportunities and saving our clients money each year. 

To find out if you can save money today, get in touch.