Could you minimise your Corporation Tax?

Share

This is a tax levied against the profits a company makes. It includes profits from trading, investments, income from renting out buildings or land and selling assets for more than they cost. Companies based in the UK pay corporation tax on profits from both the UK and abroad. Foreign companies with a UK branch or office here in the UK have to pay corporation tax on the profits from their UK activities.

Corporation tax rates

The amount you have to pay depends on how much profit your company makes. At present there are 2 corporation tax rates:

The small profits rate: companies with profits of less than £300,000 pay corporation at tax 20%.

The main rate: companies that have a profit of more than £300,000 pay corporation tax at 21%.

There is also a marginal rate of 21.25% for companies with profits of between £300,000 and £1.5 million. Companies that fall into this category will be taxed:

  • 20% on the first £300,000 of profit
  • 21.25% on the next £1.2 million
  • 21% on anything above £1.5 million

From 1 April 2015 the small profits rate will be unified with the main rate into a single rate of 20%.

Reduce your corporation tax bill

There are various opportunities for businesses to reduce their corporation tax bill. Some of these are only available to different sized companies or specific industries.

All businesses can deduct the costs of running the business from profits before tax. This includes salaries, office equipment and pension contributions. So it makes sense to keep careful records of expenditure throughout the year.

Research and development (R&D) relief

There are 2 schemes for claiming relief on R&D expenditure:

SME Scheme: 225% on R&D costs.

This means that for every £100 spent on R&D, corporation tax is reduced by £225.

There are specific rules to determine if a business is an SME for R&D relief.

Large Company Scheme: 130% on R&D costs.

Projects that qualify for R&D relief must aim to improve knowledge or capability in science or technology by solving a scientific or technological uncertainty. They cannot just work on improving their own technology. The government has guidelines that define these terms within the context of R&D relief.

The company will have to provide evidence of how the definition of R&D applies to a project in order to claim the relief.

Costs that qualify for R&D relief:

  • software
  • revenue costs – this is generally day-to- day running costs rather than capital expenditure on assets
  • staff costs
  • materials

But remember, you can only claim R&D relief if your business is liable for corporation tax.

Its a fact that Limited companies and most unincorporated associations such as sports clubs and cooperatives have to pay corporation tax. This is a tax levied against the profits a company makes. It includes profits from trading, investments, income from renting out buildings or land and selling assets for more than they cost.

Companies based in the UK pay corporation tax on profits from both the UK and abroad. Foreign companies with a UK branch or office here in the UK have to pay corporation tax on the profits from their UK activities.

Corporation tax rates

The amount you have to pay depends on how much profit your company makes.

At present there are 2 corporation tax rates:

The small profits rate: companies with profits of less than £300,000 pay corporation at tax 20%.

The main rate: companies that have a profit of more than £300,000 pay corporation tax at 21%.

There is also a marginal rate of 21.25% for companies with profits of between £300,000 and £1.5 million. Companies that fall into this category will be taxed:

  • 20% on the first £300,000 of profit
  • 21.25% on the next £1.2 million
  • 21% on anything above £1.5 million.

From 1 April 2015 the small profits rate will be unified with the main rate into a single rate of 20%.

Reduce your corporation tax bill

There are various opportunities for businesses to reduce their corporation tax bill. Some of these are only available to different sized companies or specific industries.

All businesses can deduct the costs of running the business from profits before tax. This includes salaries, office equipment and pension contributions. So it makes sense to keep careful records of expenditure throughout the year.

Research and development (R&D) relief

There are 2 schemes for claiming relief on R&D expenditure:

SME Scheme: 225% on R&D costs.

This means that for every £100 spent on R&D, corporation tax is reduced by £225. There are specific rules to determine if a business is an SME for R&D relief.

Large Company Scheme: 130% on R&D costs.

Projects that qualify for R&D relief must aim to improve knowledge or capability in science or technology by solving a scientific or technological problem.

Share

Other News

Tax Year End Planning Checklist For Individuals – 2023/24 Tax Year

As tax year end approaches, there is still time to make use of your available reliefs and allowances.

This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.

Higher Rate Taxpaying Is A Growing Club

As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.

5 Top Tips To Boost Your Pension Savings

It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.