There are many ways to reduce your corporation tax bill, some more obvious than others. This article will explore six of the most effective methods for reducing your taxable income. Some of these methods may be familiar to you, while others may be new. But all of them can help you save money on your corporate taxes. Let’s get started!
1. Get Capital Allowances
Capital allowances are deductions that can be made for the cost of certain assets, such as machinery and equipment, property, etc. They are designed to encourage businesses to invest in new equipment and help to reduce their overall tax liability. Suppose you are thinking of investing in new equipment for your business. In that case, it is worth considering whether you could claim capital allowances.
The process of claiming the allowances might be complex. Hence, it is best to hire a professional agency to leverage capital allowance opportunities . These agencies will be in the best position to help identify which assets are allowed to claim allowance against. They will also simplify the process by removing all your burdens.
2. Use Tax Losses
Another way to do this is to use tax losses to offset your corporation tax liability. When your business incurs a loss, you can carry that loss forward and use it to offset future profits. This can help to reduce your corporation tax bill significantly.
There are a few things to remember when using tax losses to reduce your corporation tax bill. First, you need to make sure that your business incurs the loss. Second, you must ensure that the loss is incurred in the current financial year. Finally, you must ensure that the loss is not due to fraudulent activity.
3. Pay Dividends
Dividends are a distribution of a company’s profits to its shareholders. When a company pays dividends, the shareholders receive a portion of the company’s earnings. The dividend amount is based on the number of shares the shareholder owns. For example, if a company pays a dividend of $1 per share, and a shareholder owns 100 shares, the shareholder will receive $100 in dividends.
Dividends are paid out of a company’s after-tax profits. This means the company has already paid taxes on the profits being distributed to shareholders. As a result, dividends are not subject to corporate income tax. Instead, they are taxed as personal income. The dividend tax rate is lower than the tax rate on ordinary income.
4. Claim Research and Development (R;D) Tax Credits
As a business owner, you always look for ways to reduce expenses and increase profits. One often overlooked way to do this is to take advantage of the research and development (R;D) tax credit.
The R;D tax credit is a government-sponsored program offering businesses a tax break to invest in research and development. By claiming the R;D tax credit, you can reduce your corporation tax bill by up to 30%. In addition, the R;D tax credit can be used to offset other expenses, such as payroll taxes. To take advantage of the R;D tax credit, you must have records documenting your research and development expenses.
5. Claim the Enterprise Investment Scheme (EIS) Relief
The Enterprise Investment Scheme (EIS) is a Government tax relief scheme designed to encourage investment in small, high-risk trading companies. By investing in an EIS-eligible company, you can claim income tax relief of 30% on the amount invested, up to a maximum investment of £1 million per year.
You can also claim a Capital Gains Tax (CGT) exemption on any gains from selling your company shares, provided you’ve held them for at least three years. To qualify for EIS relief, the company must be unlisted and have fewer than 250 employees. The shares must also be issued at market value and cannot be subject to deferred consideration. If you’re considering claiming EIS relief, getting expert advice is vital to ensure you meet all the eligibility criteria.
6. Claim the Patent Box Relief
The Patent Box relief is a Corporation Tax relief that applies to profits arising from patents and other qualifying IP rights. The relief reduces the rate of Corporation Tax that companies have to pay on their profits from these IP rights, making it an incentive for businesses to invest in innovation.
To qualify for the relief, businesses need to own or have exclusive licensee rights for a qualifying patent or another IP right. They must also generate revenue from activities relating to that IP right. The relief rate depends on when the relevant IP right was granted, but it can be as high as 14%.
There are several ways to reduce your corporation tax bill. Some of the most common methods include claiming tax relief, making charitable donations, and setting up a pension plan. If you’re looking for ways to reduce your tax liability, you must consult with a tax advisor to ensure that you’re taking advantage of all the available options.