Corporation Tax can be a significant expense for small businesses. Thankfully, with efficient planning and organisation, you can limit the amount of small business tax you need to pay.
The basic rate of Corporation Tax is 19% for businesses who earn up to £50,000 a year, and 25% for businesses earning over £250,000. For those earning in between, they pay 25% reduced by a marginal relief rate. However, there are additional ways of gaining a small business tax reduction.
How to reduce company tax
One of the best ways to keep your tax rates at a minimum is to file taxes accurately and on time. If you miss the deadline, you will accrue interest and penalties, leading to significant tax increases. Furthermore, if you pay Corporation Tax early, HMRC will pay you back interest on this amount.
You can improve your tax efficiency by strategically timing large purchases. Make larger purchases at the end of an accounting period when you have allowable expenditure. As a result, you will reduce the amount of tax you pay.
Ensure you make the most of tax deductibles. By claiming allowable deductions, you reduce your overall profits and pay less taxes.
You can deduct many business expenses. This includes wages, pension contributions, office supplies, professional services, travel and more. Anything you claim must be for business use only.
Tax relief for small businesses
Certain sectors and expenses qualify for tax relief, meaning businesses pay less or no tax.
Businesses owners in creative sectors, such as in theatre, museums, film, TV and video games can claim tax relief.
You can also spend up to £1,000,000 on plant and machinery products without needing to pay tax.
Businesses also have tax credits for money spent on research and development. This includes software development, product design and improvement, technical engineering research and more.
If you have a patented product, you can also pay a reduced rate of 10% corporate tax. Therefore, filing for a patent can be a tax efficient move as well as protect your intellectual property.
To ensure your business is making the most of tax relief schemes, contact a tax planning specialist. At J Sweeney Accountants, we have a team of professional business accountants. For more information, email [email protected] or call 01604 950034.
