In the age of corporate social responsibility, tax efficiency has become a delicate issue for businesses. Organisations are increasingly wary of the reputational damage any whiff of ‘tax avoidance’ can do. There is also the expediency of keeping HMRC onside, and not giving them any reason to put you through the disruption of an audit, to bear in mind.
But there is a world of difference between giant multinationals picking and choosing where they register their business units so they end up paying hardly any corporation tax and ordinary businesses taking steps to ensure they don’t pay more than they need to. And while the tax system does include numerous perfectly legitimate mechanisms for lowering your tax liabilities, you have to be proactive about gaining the benefit from them. Don’t expect the taxman to give you freebies!
Here are four key things you can do to minimise your corporation tax bill.
Claim all legitimate expenses
The expenses system is there for a reason, to help businesses meet operating costs by providing tax relief on them. But you can only get the benefit of these allowances if you claim. The first thing is to understand exactly what you can claim as business expenses – this article provides a thorough guide. Then it’s a matter of putting robust systems in place to document and record all valid expenditure, and to make that available when it comes to doing your tax returns.
Make use of capital allowances
Like operating expenses, the capital allowance system is intended to help companies with necessary expenditure through tax relief. But rather than day-to-day running costs, capital allowances are aimed at assisting with big outlays, such as purchasing new equipment or machinery, or renovating business premises. The formal name for this type of relief is the Annual Investment Allowance (AIA), which allows you to claim on qualifying capital expenditure up to a value of £200,000. Read more about claiming against your AIA here.
Get relief for research and development
One specialist area of tax relief for capital costs is that available for expenditure on research and development. The government’s aim is to encourage more companies to invest in R&D, and in doing so develop innovations that might eventually benefit the wider economy. To qualify, you have to be able to demonstrate that projects meet various criteria for trying to overcome recognised issues in your field. Contrary to what many people believe, your project doesn’t have to have been successful for you to qualify for R&D tax relief. Click here to read our article debunking the myths surrounding this topic.
Pay your corporation tax early
Finally, one option for reducing your corporation tax bill is to pay it early. If you do this, HMRC will pay you back interest on your tax for the period up until your bill deadline at a rate of 0.5%. This is known as credit interest. The maximum length of time you can claim for before the start of your accounting period is 6 months and 13 days. This does require you to get your accounts in order well in advance, and can mean a reduction in liquidity within your business for a period. But on the other hand, getting your accounts in order early can sometimes be beneficial as it helps you to see the state of your company finances with plenty of time to take action.
Talk to an accountant
At Kay Johnson Gee our team undergoes continuous training and development so we can best advise you and your company on the most efficient tax strategy. We offer a complimentary review of your current tax arrangements so if you would like a review, contact us on 0161 832 6221 or email [email protected].