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Ways to Reduce Corporation Tax

business finance Oct 10, 2019

Here is it – my top 5 tips for reducing your corporation tax.

I’ll start this off with a caveat – I am not an accountant, and I don’t pretend to understand everything about accountancy. However these are things I have picked up over the years which have saved me dramatic amount of money.

I’m not looking to dodge taxes, but there are some very legitimate ways to reduce your corporation tax payments.

So here they are!

Research and Development (R&D)

More detailed information is available on the HMRC website, however in short – SMEs are entitled to a special R&D relief, which gives you a 230% reduction on R&D costs.

What is R&D?

Taken from the HMRC Website:

To get R&D relief you need to explain how a project:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • tried to overcome this uncertainty
  • could not be easily worked out by a professional in the field

Your project may research or develop a new process, product or service or improve on an existing one.

Buy an Electric Car

The more expensive the car, the more money you get back. For example, by buying a £100,000 Tesla, which is fast as lightning, you immediately get 20k back in corporation tax (year 1 write down).

There are many other benefits to buying an electric car which I cover in my article on why buying an electric car is one of the best decisions I made as a business owner.

Pay Into Your Pension

By far one of the most tax efficient use of your spare cash is to have your company make a pension contribution into your own personal pension.

Pension payments are counted as a business expense, so this can greatly reduce the amount of corporation tax you make and gives you a great way to pay into your pension.

Purchase Equipment

This is a little of a two edged sword for me, but it does work well if you are holding off on any significant purchases for your business.

Buying assets for your business of course lowers your profits. Lowering your profits will reduce your corporation tax.

The issue here is that you need the cash to buy assets, but ultimately I would rather money goes towards my business than to the government. Did you know that Facebook paid less than £5,000 in UK corporation tax not too long ago? Yeah …

It’s short and simple, but these 3 items above provide all of the main tax savings that you can reap as a business owner.

There are other savings to be had…government grants for home charger installation etc.. and that’s not to mention that electric cars are typically fast as you like and still practical.

Claim All Expenses

Something I struggle to do most of the time, because I’m so busy. You need to claim for everything. Common ones that might get missed are:

Mileage and all travel costs

Use of your home – If you have a room dedicated to work at home then you can claim costs for electricity and part of your house bills.

Advertising, marketing, minor purchases whilst out and about.

Bonus Tips!

A few small but still meaningful savings can be had along the way using the few tips below. 

You can issue your directors with up to £300 in Vouchers per year, tax free. 

Multiple annual events (Christmas Parties or summer BBQs for example) are also tax-free providing they don’t exceed £150 per head, per year (and per event).

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