5 Simple Ways to Reduce Your Corporation Tax Bill:
Reducing your limited company’s corporation tax bill doesn’t always need to involve complex or convoluted tax planning. There are some simple but yet effective things you could be doing to ensure your business isn’t paying. More than its fair share of corporation tax here in the UK.
What exactly is Corporation Tax?
Corporation tax is a tax on a company’s profit. So, how much corporation tax your company pays depends entirely on? How much profit the company makes the rate of corporation tax in the UK for the 2021-22 tax share remains at 19. So, for every 100 pounds of profit, a company makes HMRC will expect to receive 19 pounds of corporation tax.
This means any allowable expenses or allowances will help to reduce profit. The overall tax bill so, let’s look at five common ways your company can reduce your overall corporation tax bill.
Where possible you should transact business expenses through the company bank account to create a clear paper trail.
Avoid paying through your own personal bank account or worse still with cash out of your own pocket. Then never reclaim from the company just by paying out of your own personal account. With cash, you end up creating an additional unnecessary step.
Which consumes your valuable time common examples of such expenses include subsistence. That is food and drink travel and parking expenses just to name a few.
Essentials:
In these situations, it is essential that as a minimum they are recorded through your company bank account. Where possible receipts obtained and uploaded into the cloud. Now for these types of expenses each individual transaction.
It May is not particularly high but these are often regular recurring expenses. They do accumulate and quite often. Add up to material numbers using a piece of accounting software.
Such as Xero with hub dock can help you keep track of your business expenditure. Even scan receipts for you with your smartphone. This entire process can and should be systemized and automated.
Paying a director’s salary:
Now quite often you will be a director and a shareholder of your limited company. There may be multiple directors and shareholders. The good news is that you as a director shareholder have the option of paying.
Yourself via a salary or dividends or a combination of both dividends are paid out. To you the shareholder from profit post corporation tax.
- Overall:
And will reduce the overall corporation tax bill. Now it’s important not to go off and start paying yourself a direct salary your company cannot commercially. Justify, or afford just to save some corporation tax. The more you pay yourself the increased income tax and national insurance liability will eventually outweigh any corporation.
Investing in your business:
When you invest in plant machinery and fixtures and fittings for your business. Now, plant or machinery does not only relate to heavy industrial plants.
But includes modern hardware such as laptops and printers’ fixtures and fittings include items such as desks and chairs. As an example, for tax purposes, though your company can utilize.
Now, it sounds like a bit of jargon but it’s not that complicated at all. In simple language, the annual investment allowance will allow your company to deduct. The full cost of the asset from profits in the year of purchase.
An e-commerce trading company forecasting pre-tax profits of 100,000 pounds. For the year ending 31st of December, the owners of the company are considering buying. Some hardware and equipment such as laptops printers and peripherals at a total cost of 60,000 pounds.
- Statement:
- The hardware will have an estimated useful life of three years. So, ordinarily in Ryan’s limit’s account depreciation will be spread over three years that’s 20,000 pounds per year. Through the income statement however providing Ryan limited.
Purchase of the equipment before the 31st of December. They will be able to deduct the full cost that is 60,000 pounds by utilizing. The annual investment allowance leaving them with 40,000 pounds of taxable profits in the year to 31st December.
Pension contributions:
Pension contributions are allowable for corporation tax purposes. So, for every 100-pound contributed to a pension scheme directly.
It will save 19 pounds of corporation tax in the 2021 2022 tax year.
For your limited company in the 21 22 tax shares, you as an individual can receive a total contribution of up to 40 000 pounds. To an approved private pension plan without incurring a pension savings tax charge contribution.
Claiming legitimate expenses:
The dogs tell Daggett’s body but the beauty of being a company director shareholder is that. There is an array of legitimate expenses. You can claim through your company and subsequently reduce your corporation tax bill.
Expenses are usually deemed allowable providing. They are holy and exclusively for the purposes of your business. Unfortunately, HMRC does not consider all business expenses allowable. An example, of this, is client entertainment which many companies incur. But must be added back to profits when calculating the corporation tax liability.
What is a holding company/parent company?
A holding company in accordance with the company’s act of 2006 section 1159 can be described. And defined as follows number one it holds a majority of the voting rights. In the undertaking also known as subsidiary number two, it is a member of the subsidiary and has the right to appoint.
Remove a majority of its board of directors and number three. It has the right to exercise a dominant influence over the undertaking. i.e., the subsidiary now this is all very technical speak. So, what does this actually mean in simple English?
- Services:
It May is not particularly high but these are often regular recurring expenses. They do accumulate and quite often. Add up to material numbers using a piece of accounting software.
Such as Xero with hub dock can help you keep track of your business expenditure. Even scan receipts for you with your smartphone. This entire process can and should be systemized and automated.
It helps you to reduce your bill. Best services i the UK
