Corporation tax: Ways to reduce your bill

Anyone who is involved with running a limited company will know corporation tax as a levy on company profits made in a tax year.

Corporation tax is deducted at a flat rate of 19% in 2019/20 and last year it netted the Treasury £55.1 billion – up 2% on the previous year.

The UK rate of corporation tax, already one of the lowest in the developed world, is to fall to 17% from 1 April 2020.

Debate rumbles on about whether or not that will cause receipts to fall, but we know what reliefs and allowances are out there to reduce your bill now.

Capital allowances

Your company may be able to claim capital allowances on any equipment, machinery or vehicles it buys for business use.

You can usually deduct the full value of an asset from your profits before corporation tax is applied.

We calculate the asset’s value, unless you already owned it before you started your company or it was a gift, in which case we use the asset’s market value.

The costs of your company’s running costs, items your company trades, or interest payments and finance costs for buying assets can also be deducted.

R&D tax credits

SME R&D relief allows your company to deduct 130% of qualifying costs from annual profits in addition to the standard 100% deduction (230% in total).

Loss-making companies can swap their losses for a payable tax credit worth up to 14.5% of the loss, rather than paying corporation tax at 19% in 2019/20.

Small businesses employ fewer than 500 staff, have an annual turnover of less than €100 million or a balance sheet total below €86 million.

R&D must be for a genuine innovation, advancing knowledge on behalf of the whole sector, and be a practical project.

The R&D expenditure credit can be claimed by SMEs that were subcontracted to do R&D work by a larger company or who received a subsidy for their R&D project.

Patent box

Companies can use the patent box regime to reduce their corporation tax rate from 19% to 10% in 2019/20 on any qualifying patents or similar intellectual property.

To qualify, your company must hold and generate income from a qualifying patent and be elected into the patent box scheme.

Various conditions, qualifiers and variations exist with the patent box, while determining eligibility requires a complex calculation that we can handle.

Business structures

Many people come to us asking whether it’s better to operate as a sole trader, partnership or limited company.

Our answer is usually the same: your choice should depend on the commercial and personal goals for your business, not on any potential tax implications. The only exception to that rule is if certain tax measures are affecting your sector.

Buy-to-let landlords, for example, operating as limited companies are dominating the purchase market in 2019.

More landlords have incorporated their business to avoid the phased reduction of mortgage interest relief, as the measure does not affect limited companies.

Since the measure was announced in 2015, we have helped landlords with larger portfolios make this transition.

Our corporate tax service offers business structure expertise to suit your goals, and applies any relevant reliefs or allowances to reduce corporation tax.

Email us on info@stapletonsaccountants.co.uk or call 01363 773191 for more information.