As a business owner, reducing your corporation tax liability can significantly boost your company’s profitability. Corporation tax is charged on your business’s profits, and while it’s essential to comply with UK tax laws, there are legitimate strategies to minimize your tax bill.

This guide will explain various methods you can use to reduce your corporation tax liability, from making the most of allowances to effective tax planning. At CANGAF Accountants, we help businesses implement smart tax strategies while staying compliant with HMRC regulations.

1. Claim All Allowable Business Expenses

One of the most effective ways to reduce your corporation tax is by claiming all allowable business expenses. These are costs incurred by your business in its day-to-day operations. HMRC allows these expenses to be deducted from your profits before calculating your tax liability.

Common allowable expenses include:

• Office costs: Rent, utilities, and equipment such as computers and printers.
• Staff salaries and pension contributions.
• Travel expenses: Fuel, parking, and public transport for business-related travel.
• Marketing and advertising: Costs related to promoting your business.
• Professional fees: Accountants and legal fees.

Ensure you keep detailed records of all expenses to maximize your claims. At CANGAF, we help businesses maintain accurate records and identify any missed deductions to reduce tax bills.

2. Maximise Capital Allowances

When you buy assets like machinery, vehicles, or equipment for your business, you can claim capital allowances to reduce your taxable profits.

One of the most beneficial capital allowances is the Annual Investment Allowance (AIA), which lets you deduct the full cost of qualifying assets in the year you purchase them, up to a certain limit.

Examples of qualifying assets include:

• Office equipment (computers, furniture)
• Machinery and factory equipment
• Commercial vehicles

By claiming capital allowances, your taxable profits are reduced, lowering your corporation tax bill. At CANGAF, we assist in tracking and claiming these allowances, ensuring no opportunities are missed.

3. R&D Tax Credits

If your company engages in research and development (R&D) activities, you could be eligible for R&D tax credits. This government incentive allows businesses to claim back a portion of their spending on innovation and development, which can lead to substantial tax savings.

Examples of R&D activities include:

• Developing new products or processes
• Improving existing products or services
• Investing in technological innovation

R&D tax credits can either reduce your corporation tax liability or, in some cases, provide a cash repayment if your business is making a loss. CANGAF Accountants specializes in identifying R&D activities and helping businesses claim their full entitlements.

4. Make Pension Contributions

Making pension contributions for yourself (as a business owner) and your employees can be a tax-efficient way to reduce your corporation tax liability. Pension contributions made by your company are considered an allowable expense and can be deducted from your profits before calculating your tax liability.

By contributing to a pension scheme, not only do you save on tax, but you also help secure your and your employees’ future.

5. Dividend Payments

If you’re a director-shareholder, one way to reduce your tax burden is by taking dividends instead of a salary. Dividends are taxed at a lower rate than income tax, meaning that after paying corporation tax on profits, paying yourself through dividends can be more tax-efficient than a full salary.

However, it’s important to strike a balance between salary and dividends to ensure you stay within legal boundaries. CANGAF Accountants can help you plan your dividend payments to maximize tax efficiency.

6. Take Advantage of the Patent Box

The Patent Box is a special tax relief designed to encourage companies to retain and commercialize their patents. If your company holds patents, you could qualify for a reduced corporation tax rate of 10% on profits earned from patented inventions.

This scheme can be particularly valuable if your business operates in sectors like technology, manufacturing, or pharmaceuticals. By leveraging the Patent Box, you can significantly reduce your corporation tax rate. CANGAF can assist in assessing your eligibility and ensuring compliance with the scheme.

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7. Use Loss Relief

If your business has suffered losses in previous years, you may be able to use loss relief to offset current or future profits, thereby reducing your corporation tax liability. There are several types of loss relief available, including:

• Carry forward: Use losses from previous years to offset profits in future years.
• Carry back: Offset losses against profits made in the previous year, resulting in a tax refund.
• Group relief: If you’re part of a group of companies, you can offset losses of one company against the profits of another within the group.

Effectively utilizing loss relief can lead to significant tax savings. CANGAF Accountants can help you navigate the complexities of loss relief to optimize your tax position.

8. Donate to Charities

Making charitable donations can be a way to reduce your taxable profits and lower your corporation tax liability. Donations to registered charities in the UK are eligible for tax relief, meaning they can be deducted from your company’s taxable profits.

Not only does this help you reduce your tax bill, but it also allows your business to contribute to worthy causes. CANGAF Accountants can guide you on how to structure charitable donations to ensure they are tax-efficient.

9. Split Income with a Spouse

If you run your business as a limited company, you can appoint your spouse or partner as a shareholder. By doing so, you may be able to split income through dividends, making use of their personal tax allowances and lower tax bands, which could reduce the overall tax burden.

This strategy requires careful planning to ensure compliance with HMRC rules, but when done correctly, it can result in significant tax savings. CANGAF Accountants can help you set up this arrangement legally and tax-efficiently.

10. Plan Ahead for Tax Efficiently

One of the most effective ways to reduce your corporation tax bill is to engage in regular tax planning. By reviewing your business structure, income, expenses, and tax liabilities throughout the year, you can identify opportunities to reduce your corporation tax burden.

CANGAF Accountants offers ongoing tax planning services to ensure your business remains as tax-efficient as possible. Whether it’s advising on the timing of asset purchases, restructuring your company, or taking advantage of government incentives, we’ll help you minimize your tax bill while staying compliant with all regulations.

Conclusion

Reducing your corporation tax liability requires careful planning, a deep understanding of tax laws, and expert guidance. By implementing the strategies outlined in this guide, you can save your business money and improve profitability.

At CANGAF Accountants, we specialize in helping businesses of all sizes minimize their tax liabilities while staying compliant with UK tax regulations. Whether you need assistance with claiming allowable expenses, filing for R&D tax credits, or planning your dividends, we’re here to help.

For professional advice on how to reduce your corporation tax bill, contact CANGAF Accountants today.

CANGAF Accountants
235 Tonge Moor Road, Bolton BL2 2HR
Email: info@cangafltd.com
Phone: 01204 859315