Reducing your corporation tax bill is necessary for managing business growth, improving cash flow, and ensuring long-term sustainability. By optimising your tax position, you can reinvest savings into expanding operations, developing new products, or rewarding your team.
Effective tax planning not only reduces your tax liability but also strengthens your financial resilience, helping your business succeed even in uncertain times.
With HMRC regulation changes to tax rates, allowances, and relief schemes, staying informed and compliant is essential to managing how to reduce corporation tax and exploring every opportunity to reduce corporation tax.
In the UK, limited companies pay Corporation Tax on their profits. As of 2024, the amount you pay depends on how much profit your company makes. If your profit is up to £50,000, you pay a lower rate of 19%.
If your profit is over £250,000, you pay the higher rate of 25%. For profits between £50,001 and £250,000, you get marginal relief, which means you pay a gradually increasing rate, not the full 25%.
For example, if your company makes £40,000, your tax would be £7,600. But if you make £100,000, you’d pay a mix of rates, with some relief to lower the total tax. Knowing these rates helps you plan better and find ways to save on tax.
Your tax bill is based on taxable profits, which is your total income minus allowable expenses and reliefs. Knowing what qualifies for deductions can help to reduce corporation tax and lower your overall liability.
Claiming every allowable business expense reduces your taxable profits, lowering the amount of Corporation Tax you owe.
You can deduct costs like:
However, you can’t claim personal expenses or client entertainment. Keeping accurate records ensures you don’t miss any legitimate deductions, helping you keep more of your profits.
How to reduce corporation tax can be influenced by various tax-saving strategies. One way to pay corporation tax is through capital allowances. This lets you deduct the cost of qualifying business assets from your profits.
Additionally, the super deduction (until March 2026) and full expensing provide even more relief for new plant and machinery investments, reducing your taxable income significantly.
If your business works on innovative projects, you might qualify for R&D tax credits. These credits allow you to deduct a higher percentage of your R&D costs from your profits.
SMEs can get up to 186% relief on qualifying expenses, while larger companies can claim under the RDEC scheme. Eligible activities include developing new products, processes, or software, so documenting your R&D efforts is essential.
Employer pension contributions are tax-deductible, meaning they reduce your taxable profits. By contributing to employee pensions, you lower your Corporation Tax bill while improving employee benefits.
You can also use salary sacrifice schemes, where employees give up part of their salary in exchange for increased pension contributions, reducing both income tax and National Insurance.
Directors who pay themselves through a combination of salary and dividends can reduce personal and business tax liabilities. Salaries are subject to income tax and National Insurance, but they’re deductible expenses for the company.
Dividends are taxed at lower rates and are not subject to National Insurance, so finding the right balance helps minimise overall tax costs.
If your business makes a loss, you can use loss relief to offset that loss against profits. You can carry losses back to claim a refund on previously paid taxes or carry losses forward to reduce future tax bills.
SMEs can offset losses up to £5 million, providing valuable cash flow relief during tough times.
If your company is part of a group, you can share losses between companies to reduce the overall tax bill. Profitable companies can offset their tax liability by using the losses of another group company, effectively balancing profits and losses across the group.
If multiple companies share ownership of a business, losses can be shared among the owning companies. This lets businesses involved in joint ventures reduce their tax liabilities by using losses proportionally, depending on their ownership percentage.
Carefully timing your income and expenses helps manage your tax bill. You can defer income to the next financial year to delay paying tax or accelerate expenses by paying bills or buying equipment before year-end to reduce taxable profits. This strategy is especially useful if you expect tax rates to rise or your profits to fluctuate.
Reducing your corporation tax bill requires careful planning and proactive decision-making. By claiming allowable expenses, leveraging reliefs like R&D credits, optimising pensions, and timing income and costs strategically, you can significantly cut your tax liability.
Regularly reviewing your tax strategy, ideally with professional guidance, ensures you stay compliant while making the most of available reliefs. Take action now to maximise your savings and reinvest them into growing your business.
Paying Corporation Tax can be complicated, and without the right help, you might pay more than you need to. It’s easy to miss out on valuable tax reliefs or forget to claim all your business expenses.
PHS Associates makes it simple. We guide you through the process, helping you claim allowances, use R&D tax credits, and plan your salary and dividends to save money. Contact us by phone at 0208 8611685 or by email at info@phs-uk.co.ukn if you need accountants. Our advice ensures you follow HMRC rules while reducing your tax bill, giving you more money to reinvest in your business.
PHS Associates Acc & Co is led by a skilled team with expertise in Accounting, Taxation, Payroll, Business consultancy, and Company secretarial services.
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