As per the spring budget from April 2023, the rates of corporation tax increased from 19 to 25 per cent. Small businesses that profit must pay corporation tax within nine months of their year-end, but not every business need to?pay the higher rate. There are many legitimate ways to reduce business profits and corporation tax liability.
Here are some ways to reduce corporation tax liability.
- Businesses that can keep their profits under ￡50,000 a year can escape the new 25 per cent rate, paying corporate tax at just 19 per cent. The 25 per cent rate only applies to businesses making profits of ￡250,000 or more, with a complex tapered rate applied for those businesses with profits between ￡50,000 and ￡250,000.
- Make a Pension contribution, from April 2023 pay up to ￡60,000 a year into the pension pots of its directors, reducing the profits that are taxed.
- If you work from home more regularly, there will be other costs, such as heating, lighting and broadband, that can be claimed. These need to be realistic, reflecting private use, so unless you have, for example, an entirely separate broadband supply in a home office, you will not be able to claim the full cost.
- Several tax reliefs are available, such as research and development (R&D) tax relief, patent box relief, and creative industry tax relief. By identifying which tax reliefs apply to its business, a corporation can claim the relevant relief and reduce its tax bill.
- Companies can reduce their taxable profits by claiming expenses that are allowable for tax purposes. These may include business-related expenses such as rent, salaries, and office equipment.
