How To Reduce Corporation Tax Legally

Jan 14, 2023 | Corporation tax

Just like everything else in business, there’s no magic bullet for reducing your corporation tax bill.

Accounting and tax avoidance are inescapable topics, but this is only down to a small minority. You want to feel that your adviser is getting you the best deal possible while keeping you on the right side of the law.

As a business owner, it’s important to understand the various ways you can legally reduce your tax bill.

So in this post, we’ll cover some of the most effective strategies for saving corporation tax.

Make use of allowable expenses

One of the simplest ways to reduce your corporation tax bill is to ensure you’re taking advantage of all allowable expenses.

These are expenses that are directly related to the running of your business and can be offset against your taxable profits.

Common examples of allowable expenses include the cost of goods sold, employee salaries, and office rent.

Capital allowances

Capital allowances allow businesses to claim tax relief on certain assets they purchase, such as machinery, equipment, and commercial vehicles.

By claiming capital allowances, such as the £1 million annual investment allowance, you can reduce the amount of profit your business is taxed on, thereby lowering your corporation tax bill.

You can currently claim a 3% allowance on new commercial building expenditures from April 2020.

Companies should review their expenditure to determine whether it qualifies for capital allowances, and the claim doesn’t have to be made when the costs were incurred. It is possible to claim missed allowances going back several years, often when a property was acquired.

Research and development (R&D) tax credits

If your business is engaged in research and development, you may be eligible for R&D tax credits.

These credits can provide a significant reduction in your corporation tax bill, as they allow you to claim back a portion of your R&D costs.

You could reduce your bill by around £25,000 for every £100,000 spent innovating.

Group relief

If your business is part of a group of companies, you may be able to take advantage of group relief. This allows one member of the group to transfer its losses to another member of the group, thus reducing the overall corporation tax bill for the group.

International tax planning

If your business operates internationally, you may be able to take advantage of international tax planning strategies to reduce your corporation tax bill.

A common strategy is to structure your business to take advantage of favourable tax treaties and laws in other countries.

Talk to your accountant

Tax laws are of course subject to change, and any decision to reduce your tax bill should be based on your finances and ongoing situation.

Speaking to us, you’ll get a better idea of what’s needed to save you tax – we’ll go through in detail, your finances, where you could save money, and how to get you there.

Staying compliant with the law is always vital, especially with tax. You don’t want an unwelcome visit from HMRC.
Get in touch with us today to see how we can help you save tax on your corporation tax bill.

Ready to go? We’re excited to hear from you.

Let’s get started, as soon as you’re ready. We’re always up for a chat about how we can support you and your business.

Quickbooks logo
aat logo
ACCA logo