Just as with many other taxes, in the absence of prudent planning, businesses risk paying too much Corporation Tax. Over the course of the last few years, the rate of Corporation Tax has fallen but, still, there are opportunities for businesses and their owners to significantly reduce their tax liabilities.
When it comes to reviewing your current arrangements, there’s no time like the present – and this is something we’re well versed in assisting our business clients with. In particular, there are a number of key things that business owners may care to consider in relation to Corporation Tax, including: –
Paying tax on account, and paying tax early
When it comes to paying Corporation Tax on account, if a company regularly and accurately forecasts its profits then interest applied to instalments can be minimised, reducing the overall payment to HMRC.
If you have the ability, and indeed the desire, to settle your Corporation Tax liabilities early, HMRC will be required to return some of the amount in the form of interest in the period running up to the expected payment date.
Tying up the cash in your business can be expensive, so making certain that you pay the right amount at the right time is imperative.
If you are paying business expenses out of your net earnings, then you are actually covering expenses that have already been taxed. It is likely that you can claim this back from the business, to reduce the company’s overall liability to Corporation Tax.
A company can claim deductions on share options and awards, based on the difference between the market value of the shares and how much employees actually paid for them.
Annual Investment Allowance (AIA)
Business owners can deduct the value of certain items, such as new computers and phones, that qualify under the annual investment allowance (AIA), from total taxable profits.
The maximum AIA claim varies from one Budget to another, so ensure you plan ahead if you are considering significant capital expenditure. For current allowances, you can view our Budget Summary here.
Mileage associated with business trips
Where you use a personal vehicle for trips that are related to the business, it is possible to request to receive the associated mileage back from the company, provided that you maintain a comprehensive log of the journeys that you intend to claim for.
The maximum rate is currently 45p per mile and is intended to reimburse you for fuel, general wear and tear, insurance and depreciation of the vehicle. If you run a company car, the mileage rates vary, so please refer to the tables in our latest Budget Summary.
It is true that, in recent years, the tax benefits associated with extracting dividends from a company have become less apparent. However, by combining a salary and dividends, there is an opportunity for owner-managed businesses to potentially minimise both corporate and personal tax liabilities.
If your company tax return shows a trading loss, this can be offset against taxable profits in the previous year to claim a tax repayment. Alternatively, the loss can be carried forward and offset against future profits until the loss is altogether eliminated.
Nowadays, it is becoming increasingly common to work from home; if you do, there may be an opportunity to claim a proportion of your ‘home expenses’. Doing so could help to reduce the overall liabilities incurred by your business.
A tax-free, flat-rate weekly allowance can also be paid to your employees if they work from home. This is a tax-deductible expense for the purposes of calculating your Corporation Tax liability.
Research and Development (R&D) tax relief
If a business is responsible for developing something new or designing a unique process, it could be eligible to receive R&D tax relief on qualifying research and development costs. Using the SME R&D tax relief scheme, you can claim up to 230% of relevant costs as a Corporation Tax deduction.
If your company is loss-making you can also use the same relief to increase carried forward losses or claim a repayable cash tax credit from HMRC.
When you purchase energy efficient or low/zero-carbon technology for use within the business, you can claim ‘enhanced capital allowances’. Claiming capital allowances in this instance, which is done via your tax return, can reduce your tax liability.
Creative industries relief
If you work within a creative industry and are involved in the creation of certain films, television programmes, animation programmes or video games, you may be entitled to claim a higher rate of Corporation Tax relief. Bear in mind that there are eligibility criteria that the project must meet, to qualify.
How can George Hay help?
If any of these considerations comes as a surprise to you, then it could be the perfect time to seek professional advice.
At George Hay, our team of tax specialists will accurately and efficiently prepare your company accounts and tax returns, ensuring you are compliant with all your corporation tax obligations. Simultaneously, we can also help you to identify applicable allowances and deductions and so minimise your tax liabilities.
In addition, being business advisers as well as chartered accountants, we can take a closer look at your organisation and assist with many other accounting and tax requirements that you may have.
To discuss your requirements in more detail with one of our experts, contact us at any of our three offices, in Huntingdon, Letchworth and Biggleswade, today.