The UK Government announced in October 2022 that the main rate of Corporation Tax (CT) will be increasing from 19% to 25% from April 2023.
This new 25% main rate will be payable by companies with taxable profits above £250,000. Small companies with profits up to £50,000 will continue to pay corporation tax at 19%.
Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.
More than ever, companies are looking for ways to reduce their corporation tax liabilities. There are many basic strategies to consider. Here are some ways to help reduce your tax bill.
1. Consider making an employer pension contribution
If you have your own limited company, it could help you save on tax charges too.
If you’re employed by the company, you can make employer contributions to your pension from your company account. Employer contributions are normally treated as a business expense, so you won’t pay corporation tax on the contribution.
If the pension contribution is made instead of paying yourself that amount of salary, then both you and your company will save on National Insurance too, and you personally wouldn’t pay any UK income tax until you access money from your pension.
HMRC could question any corporation tax relief if your total salary and benefit package is higher than the work they think you’ve done for the company.
Make sure you understand your annual allowance limits too.
Pension and tax rules can change, and any benefits will depend on your circumstances.
2. Claim for every business expense possible
It’s important to claim for everything you can when you run your own business. By making a claim, you reduce your profits, which also reduces how much corporation tax you pay.
Use directors' personal allowance effectively
Claim business mileage
Work-from-home allowance
Travel and subsistence costs
Subscriptions and training costs
Pay for a staff party or event
Download our Expenses guide for Service Based, Limited Companies to make sure you have claimed for as many expenses as possible.
Remember to keep a record of your expenses. It’s not only good practice, it’s essential. Without a record, HMRC can refuse to accept your claim.
3. If you can afford to, pay your corporation tax early
HMRC will normally pay you interest if you pay your corporation tax early. Currently they’ll pay 3.00% from the date you make the early payment, to the payment deadline.
The earliest date they’ll start paying interest from is 6 months and 13 days after the start of your ‘accounting period’. This is the time covered by your company tax return. It can’t be longer than 12 months and it’s usually the same as the financial year covered by your company’s annual accounts.
4. Invest in plant & machinery - Super deduction and Annual Investment Allowance
A new 130% first-year capital allowance for qualifying plant and machinery assets or a 50% first-year allowance for qualifying special rate assets was introduced for the period 1 April 2021 to 31 March 2023.
The super deduction and special rates (SR) allowance give businesses investing in qualifying plant and machinery assets a much higher tax deduction in the tax year of purchase than would otherwise normally occur. Expenditure incurred between 1 April 2021 and 31st March 2023 companies can claim 130% capital allowances on qualifying plant and machinery investments. No deduction is available for used and second-hand assets. For companies with a year-end straddling April 2023, the super deduction will be prorated.
The other allowance “Annual Investment Allowance” (AIA) is also available.
The AIA allows a business to claim tax relief on purchases of certain assets up to a specified limit. The AIA limit was increased to £1m on 1 January 2019. In the Autumn Statement 2022 it was confirmed at a permanent rate of £1 million from 1 April 2023. Businesses can deduct the full value of an item that qualifies for annual investment allowance (AIA) from their taxable profits.
Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.
Note the super deductions and SR allowance finishes on 31st March 2023.
For advice on ways to ensure your company pays the least amount of tax possible please seek professional guidance. We’re always on hand to help, why not book a call today to see what savings you can make?
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