Effective Strategies to Reduce Your Corporation Tax Bill
Corporation Tax is a significant cost for many companies, but with thoughtful corporate tax planning and expert advice, there are effective ways to manage your liability and strengthen your financial position.
This blog outlines how Corporation Tax is calculated and explores key strategies how to reduce your Corporation Tax bill.
These approaches are common, however, every business is different, so it’s important to discuss any tax planning opportunities with a qualified taxation adviser.
How is Corporation Tax calculated?
Corporation Tax applies to your company’s profits from trading, investments, and selling assets such as property or shares.
As of now, the main rate of corporation tax is 25% for profits over £250,000. Companies with profits under £50,000 pay 19%, and those in between benefit from marginal relief, which introduces a tapered rate.
To work out your Corporation Tax, calculate your total income and subtract allowable expenses, reliefs, and losses to arrive at your taxable profit. Then, apply the relevant rate based on your profit bracket.
How to reduce your Corporation Tax bill- with the right advice
There are several legitimate ways to reduce your Corporation Tax bill, but whether they are appropriate for your business depends on your specific circumstances.
Claiming allowable business expenses
Many day-to-day costs involved in running your business can be deducted from your profits, reducing your Corporation Tax liability. These might include rent, salaries, utilities, travel, and software subscriptions.
Our tax advisers can help ensure expenses are properly categorised and claimed in line with HMRC guidance.
Use capital allowances effectively
If your company invests in qualifying assets like equipment or machinery, capital allowances could offer valuable relief. For example, the Annual Investment Allowance (AIA) lets businesses deduct up to £1 million of eligible costs from their taxable profits.
There’s also full expensing for certain plant and machinery, allowing a 100% deduction in the year of purchase, subject to specific conditions.
Exploring R&D tax relief
Businesses involved in innovation may qualify for R&D tax credits. This could include developing new products, enhancing existing services, or improving internal processes.
Our experts can help you understand whether your activities qualify and guide you through making a compliant claim.
Considering tax-efficient pension contributions
Employer pension contributions can be a tax-efficient way to reduce your company’s taxable profits. These contributions are typically deductible for Corporation Tax purposes and can also support longer-term financial wellbeing for directors and employees.
By seeking professional guidance, you can make sure contributions are structured effectively and within pension regulations.
Reviewing director remuneration
The way directors are paid whether via salary, dividends, or a combination, can impact both Corporation Tax and personal tax exposure.
An accountant can help structure remuneration in a way that aligns with your goals while staying compliant with HMRC rules.
Planning income and expenditure
Timing can also play a role in tax planning. For instance, advancing certain costs into the current financial year or deferring income may help reduce this year’s Corporation Tax bill.
However, this should always be balanced against your broader financial plans, a discussion best had with your tax adviser.
Expert tax planning from Edwards Chartered Accountants
Managing your Corporation Tax is about understanding your options and planning responsibly. That’s where expert advice makes all the difference.
At Edwards Chartered Accountants, we work with businesses of all sizes to navigate tax efficiently and ethically. Our experienced team of taxation specialists will assess your position and help identify practical steps to reduce your liability where appropriate.
Contact Edwards Accountants to arrange a conversation with our team.
