3 ways to reduce corporation tax

If you are a director or owner of a company operating in the UK, you are liable to pay corporation tax. Corporation tax must be paid based on the company’s profits and on any gains from selling assets such as land, property, or shares.

You will not receive a bill for corporation tax and your company is responsible for working out the amount owed, reporting the tax, and paying it on time.

A company pays corporation tax on taxable profits also known as the money it makes by doing business, investing, and selling.

This article will identify three ways your company can reduce its tax bill. However, businesses must comply with HMRC guidelines when reducing corporation tax liability.

To ensure you remain compliant while taking advantage of a lower tax rate, get advice from React Accountancy.

Pay yourself a salary

When running a limited company, it can be easy to assume the business’s money is your money but, it is a separate legal entity. The most tax-efficient way for a business owner or company director to be paid is through a salary.

By paying yourself a salary you ensure you take home earnings and reduce your company’s profits which consequently reduces your corporation tax bill.

Before you pay corporation tax on your profits, make sure you remember to pay yourself, but remember, dividend payments are not an allowable business expense.

Make early payments

If you pay corporation tax early, HMRC is likely to pay you interest, also known as credit interest, on your payments. HMRC’s interest rate is 0.5 per cent which applies when tax is paid early or too much tax has been paid.

So, if you stay on top of your tax and get it paid before the deadline, HMRC will give some of it back in the form of interest.

Making early payments also avoids penalties to pay for late payments. The HMRC issues penalties even if you are just one day late.

Claim back business expenses

No matter how big or small, as a business owner, it is important to ensure you claim back all business expenses. When you make a claim, you once again reduce your company’s profits which reduces the amount of corporation tax you are liable to pay.

The HMRC states that expenses claimed back must be ‘wholly and exclusively for business purposes and not for personal use.

However, anything business-related can be claimed back, from equipment to travel expenses. But remember to keep receipts and a record of each expense, without proof, HMRC can refuse to accept your claim.

Why choose React Accountancy?

Here at React Accountancy, we provide trusted accountancy services to start-up, established, and multi-national businesses across a diverse range of industries.

From the moment you get in touch, our approachable, friendly, and professional team will go above and beyond to ensure that you receive the right advice, support, and accountancy solutions for your business.

All of our team has years of experience in providing accountancy services that support your business including complex financial issues.

For more information, get in touch.