Here, ‘reducing’ does not indicate that you will be paying less than the actual tax payment, rather it refers to how to eliminate the extra numbers that may get included during your tax calculation. 

To know how to reduce your Corporation Tax Payable, first you need to know what Corporation Tax means. Corporation tax is a direct tax imposed by the authorities on the income of your company. It is also referred to as business income tax or capital tax in business. You must pay tax on your profits if you are:

 

• A limited company
• Any foreign company with a UK branch or office
• A club, co-operative or other unincorporated associations

 

Taxable profits for corporation tax include the money in your company or trading profits or investments or selling assets more than the cost which is considered as chargeable gains.

 

For the year 2019/20 and 2020/21, the government has imposed the corporation tax rate at 19%. For example, if your company’s trading profit of the year is £2,000,000 then you have to pay £380,000 in corporation tax.

 

There are allowances and deductions to make sure that you are not paying an extra quid than your allowable deductions. 

 

If you are interested to save yourself a few more pound, there are some steps that you can follow:

 

STEP 1

Claim the expenses which are allowable: Claim for every expenses spent in your business. There’s no specific boundary on claiming but HMRC's only rule is that the expenses must be ‘wholly and exclusively’ spending to be tax deductible. It refers that the expenses must add value to the business or it must generate income. So, claim against those expenses and don’t miss any even little ones because,

 

• Will get to get tax relief from the expense
• If you miss counting the expense that means you are paying more corporation tax than your limits

 

For example, if you buy a laptop for office use for £1000 and forget to claim capital allowance, at the end of the year you will end up paying an extra £200 in corporation tax.

Learn more about expenses from our blog, Business Expenses Allowable or Disallowable. 

 

STEP 2

Make an early payment: If you have money in your hand, it will be wise to pay tax early and stay at the top because HMRC will happily pay you back (as an interest) for an early payment.

 

STEP 3

Get yourself paid a salary: Salary is considered to be a ‘genuine expense’. Paying yourself a salary will decrease profit in your income statement and a decrease in income statement will be a decrease in Corporation Tax bill. Thus,as a limited company owner you can save tax by paying salary to yourself. 

However, you cannot confuse salary with dividends, if you are taking dividends, you need to show enough profit.  

 

STEP 4

Throw a party: If you own a limited company, you can arrange a party for your employees at any time of the year and not just Christmas. By this, you can reclaim a value up to £150 for each guest including VAT. But this is not an appreciation to invite all your family members but your business partners as HMRC will consider it as a Staff Party. Also, without hitting a charge, you can claim for Corporation Tax relief on overall cost. 

 

STEP 5

Consult a good accountant: If you are confused and can’t figure it out by yourself then you can always contact small business accountants in London. And you do not need to worry about the fees because a good accountant will save you thousands by helping you claim everything you are entitled to. 

 

It is always important to be honest about your business statements with HMRC. Stating intentional false information may lead you and your company to penalties. Therefore, before making any decision that may affect your financial situations, you should consult with an expert. Taj Accountants is always there to guide you through your financial journey. So do not hesitate to contact us and read our blogs to learn more. 

DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you to contact Taj Accountants for further assistance.