How to Reduce Your Corporation Tax Bill with these 9 Savvy Strategies

Hello, I’m Cole Pedley from CJK Accountants, and I’m here to help you navigate the complex world of Corporation Tax in the UK. In this blog post I’m going to break down 9 straightforward ways to legally reduce your Corporation Tax bill, making it as easy to understand as possible.

1. Capital Allowances:

Imagine you buy something for your business, like a computer or a desk. The good news is that you can deduct some of its cost from your tax bill. You can do this either gradually over a few years or all at once, depending on what you buy. For example, a desk gets a different tax rate than a fancy machine. So, choose wisely!

2. Research & Development (R&D) Tax Relief:

R&D Tax Relief is a fantastic incentive for businesses that innovate. If your company is developing new products, processes, or services, you may qualify for this relief. It can cover up to 33.35% of your R&D costs, reducing your Corporation Tax bill or providing a cash repayment. The best part is, businesses of all sizes can benefit from R&D Tax Relief, as long as they’re paying tax in the UK. If you’re pushing the boundaries of innovation, don’t miss out on this opportunity to save on your taxes.

3. Structural Changes:

Structural changes can offer significant tax advantages for your business. By merging companies or making strategic changes to your business structure, you can access lower tax rates and more deductions. Some businesses may also qualify for specific tax reliefs, helping to reduce their overall Corporation Tax liability. Transferring assets and staff between entities can also be a tax-efficient strategy. For larger organisations, group relief rules can be utilised to offset losses between entities and reduce the overall Corporation Tax burden. With careful planning and strategic structural changes, UK companies can achieve significant tax savings.

4. Transfer Pricing:

Transfer pricing involves pricing transactions between related companies in different countries. By setting fair prices that reflect market conditions, companies can shift profits to lower-tax jurisdictions. However, it’s crucial to ensure compliance with tax regulations and guidelines to avoid any issues. Proper documentation, benchmarking, and adherence to transfer pricing rules are essential to making this strategy work effectively.

5. Investing in Enterprise Investment Schemes (EIS):

EIS is a tax relief scheme designed to encourage investment in smaller companies. When you invest in EIS-eligible businesses, you can enjoy tax benefits such as income tax relief of up to 30% on your investment. Additionally, any profits made from selling EIS shares are exempt from capital gains tax if you hold them for a specific period. EIS is not limited to large corporations; even small businesses can benefit by investing in EIS to boost their finances and reduce their tax liabilities.

6. Offsetting Losses:

Offsetting losses is a valuable tool for UK companies to reduce their Corporation Tax bills. It allows companies to apply losses from previous years against future profits, lowering their tax liability. You can carry forward these losses for up to nine years, ensuring you get the most out of this provision. To claim offsetting losses, you’ll need evidence of the losses, like valid invoices or statements. While there are some restrictions, this strategy can be a lifeline for businesses facing challenges.

7. Utilising Capital Gains Tax Reliefs:

Capital Gains Tax Reliefs offer opportunities to reduce Corporation Tax by taking advantage of exemptions and allowances. These reliefs come into play when a company sells certain assets like shares or property within specified timeframes. Business Asset Disposal Relief, for example, can tax up to £10 million of chargeable gains at only 10%. Understanding and using these reliefs effectively can significantly lower your tax liabilities when selling qualifying assets or transferring ownership.

8. Invoicing Expenses Separately:

Invoicing expenses separately is a straightforward strategy that can have a substantial impact on your tax bill. By billing your overhead costs separately from your sales revenue, you reduce your taxable profit margin, ultimately leading to lower Corporation Tax. Additionally, these invoiced expenses are exempt from Value Added Tax (VAT) since they’re considered overhead costs, not part of sales. To make the most of this strategy, ensure all overhead costs are invoiced separately, keeping accurate records to comply with HMRC

9. Claiming Overseas Losses & Credits:

If you do business in other countries, you can use losses or taxes you paid there to pay less tax in the UK. It’s like using your foreign tax credits wisely to reduce your overall tax bill.

By following these 9 ways, you can legally reduce your Corporation Tax without getting tangled in complicated words. Remember, it’s always a good idea to get expert advice to find the best strategy for your business. Keep your taxes simple, and you’ll have a strong financial future.

Using CJK Accountants for your tax return is a smart choice. My team and I based in Leicestershire offer a jargon-free approach to accounting, making complex tax rules easy to understand. We ensure you claim all eligible deductions and reliefs, potentially saving you money. With our tailored solutions, your unique financial circumstances are a top priority.

Don’t stress about deadlines or confusing tax jargon; we’ve got you covered. Contact us today at 01455 451 693 or email me at cole@cjk-accountants.co.uk to experience a stress-free, jargon-free tax return. Your financial peace of mind is just a call or email away.