In April 2023, the charges of company tax elevated from 19 to 25 per cent. Small companies that make a revenue should pay company tax inside 9 months of their year-end, however not each enterprise want pay the upper price. There are lots of fully official methods you’ll be able to cut back the income your corporation makes and your company tax invoice.

However be warned; HMRC takes a eager curiosity within the tax it believes a enterprise ought to pay and any enterprise that appears to push too onerous to cut back the tax it pays might discover itself below the taxman’s highlight. Working with and taking recommendation out of your accountant is necessary.

#1 – Preserve income below £50,000

Companies that may hold their income below £50,000 a 12 months can escape the brand new 25 per cent price, paying company tax at simply 19 per cent. The 25 per cent price solely applies to companies making income of £250,000 or extra, with a posh tapered price utilized for these companies with income between £50,000 and £250,000.

#2 – Make pension contributions

Making pension contributions immediately from the enterprise will cut back the quantity of company tax paid. An organization can, from April 2023, pay as much as £60,000 a 12 months into the pension pots of its administrators, decreasing the income which might be taxed. Remuneration packages for people should, nevertheless, be affordable for company tax deductions.

It’s attainable to hold ahead pension contributions over a three-year window, which means that the place buying and selling differs annually and also you had been unable to take full benefit of the £60,000 allowance, it may be topped up over the following three years.

Pension contributions have extra tax advantages too. Not like dividends or wage, no revenue tax is paid on pension contributions except thresholds are exceeded.

However, be warned. Pension contributions can not exceed the revenue generated by the enterprise. HMRC will need to be certain a enterprise passes the ‘wholly and unique’ check, which means that contributions are affordable for the work being executed. It’s uncommon to fail this check, nevertheless it pays to test together with your accountant earlier than contributions are made.

#3 – Work-from-home allowances

The pandemic has modified the best way all of us work, but for a lot of small companies or sole merchants, a house workplace has lengthy been the norm. In case you do business from home completely or for a part of the week it’s attainable to say bills that cut back firm income and the company tax paid.

In case you do business from home on a extra common foundation there shall be different prices, corresponding to heating, lighting and broadband that may be claimed. These have to be sensible, reflecting personal use, so except you might have, for instance, a wholly separate broadband provide into a house workplace, you will be unable to say the complete price.

#4 – R&D tax reduction

Companies that perform analysis and improvement might qualify for helpful R&D tax reduction, and that can immediately cut back the quantity of company tax a enterprise pays.

R&D reliefs for small companies will not be as beneficiant as they as soon as had been, with the federal government decreasing the quantity of reduction that may be claimed, believing the system had been open to abuse and fraud.

In brief, any enterprise that undertakes analysis or improvement to realize an advance in science or expertise might qualify. Many companies, whether or not in building or IT, creating new merchandise or processes might qualify for the reduction typically with out realising. The reduction will be utilized to employees, supplies, and even utility prices.

Small companies – which HRMC considers having lower than 500 staff and a turnover of £100m – can declare as much as 130 per cent of qualifying prices from yearly income plus the conventional 100 per cent deduction, totalling 230 per cent.

#5 – Patent field

Restricted corporations that derive an revenue from patents or have undertaken qualifying improvement on patents will pay company tax at simply 10 per cent on these income.

To qualify, these patents have to be registered with the UK Mental Property Workplace, the European Patent Workplace or related IP authorities in EU international locations.

The patent field system is advanced, nevertheless. Will probably be essential to establish these patents that qualify and the income which might be generated, and that’s not at all times easy.

#6 – Purchase plant and equipment

Companies that buy qualifying plant and equipment can declare tax reduction of as much as 100 per cent of these prices, decreasing their company tax publicity. Each enterprise has an annual funding allowance of £1m, making it a major reduction. It’s attainable to offset 100 per cent of any qualifying expenditure within the first 12 months of buy – a measure launched in 2023’s Spring Finances.

The allowance notably excludes vehicles however does prolong to a variety of different belongings together with vans, IT, plant and equipment. It can be utilized to second-hand belongings.

#7 – Swap to electrical firm vehicles

Companies that buy new and unused zero-emission electrical vehicles can qualify for a 100 per cent first-year allowance, which means that the complete price of that buy can be utilized to cut back income and company tax. There is no such thing as a higher restrict on the price of these purchases, making electrical automobiles a pretty firm automotive choice.

James Johnson is a associate on the accountants Hillier Hopkins. He works with formidable and rising companies, advising on funding, tax and compliance.

Extra on company tax

Tax benefits of a restricted firm versus sole dealer