Corporation tax is a tax levied on the profits of limited companies and other legal entities operating in the United Kingdom. As a business owner, it is important to understand how to reduce your corporation tax liability in order to maximize your profits. In this blog, we will explore 18 legal ways to reduce your UK corporation tax.
Utilize Tax-Deductible Expenses
One of the most straightforward ways to reduce your corporation tax is to take advantage of tax-deductible expenses. This means that you can claim tax relief on the costs of running your business, such as rent, utilities, and equipment.
Make Use of Capital Allowances
Capital allowances allow businesses to claim tax relief on the cost of assets, such as machinery and equipment, that are used for business purposes. This can help to reduce your corporation tax liability by decreasing the taxable profits of your company.
Take Advantage of Research and Development Tax Credits
If your company engages in research and development, you may be eligible for research and development (R&D) tax credits. These credits can provide a significant reduction in your corporation tax liability.
Claim Losses
If your company incurs losses, you may be able to claim these losses against future profits, thereby reducing your corporation tax liability.
Make Use of Employee Share Schemes
Employee share schemes can help to reduce your corporation tax liability by allowing you to offer tax-efficient incentives to your employees. This can help to attract and retain talent, while also reducing your corporation tax bill.
Utilize the Annual Investment Allowance
The annual investment allowance allows businesses to claim tax relief on the cost of plant and machinery. This can help to reduce your corporation tax liability by decreasing the taxable profits of your company.
Make Use of the Patent Box Regime
The patent box regime allows companies to pay a lower rate of corporation tax on profits arising from patented inventions. This can help to reduce your corporation tax liability, while also incentivizing innovation.
Utilize the Enterprise Investment Scheme
The enterprise investment scheme (EIS) allows businesses to raise equity finance by offering tax-efficient incentives to investors. This can help to reduce your corporation tax liability by attracting investment and providing a source of funding for growth.
Make Use of the Seed Enterprise Investment Scheme
The seed enterprise investment scheme (SEIS) is similar to the EIS, but is designed specifically for early-stage businesses. This scheme allows businesses to raise equity finance by offering tax-efficient incentives to investors, thereby reducing your corporation tax liability.
Take Advantage of the Social Investment Tax Relief
The social investment tax relief (SITR) allows businesses to raise equity finance by offering tax-efficient incentives to investors. This scheme is designed specifically for social enterprises, and can help to reduce your corporation tax liability while also attracting investment.
Make Use of the Employee Owner Scheme
The employee owner scheme allows businesses to transfer ownership of the company to employees in exchange for tax benefits. This can help to reduce your corporation tax liability, while also incentivizing employees and improving morale.
Utilize the Enterprise Management Incentive Scheme
The enterprise management incentive (EMI) scheme allows companies to offer tax-efficient incentives to employees in the form of share options. This can help to reduce your corporation tax liability, while also attracting and retaining talent.
Take Advantage of the Corporation Tax Loss Relief
Corporation tax loss relief allows companies to offset current losses against future profits, thereby reducing their corporation tax liability.
Make Use of the Small Businesses’ Relief
Small businesses’ relief is a scheme designed specifically for small businesses. It provides a reduction in the rate of corporation tax for businesses with taxable profits of up to £300,000. This can help to reduce your corporation tax liability, while also providing support to small businesses.
Transfer Profits to a Low-Tax Jurisdiction
Finally, another way to reduce your corporation tax liability is to transfer profits to a low-tax jurisdiction. This can be achieved through the use of subsidiary companies, joint ventures, or other corporate structures. However, it is important to be aware of the tax implications of transferring profits, and to seek professional advice if necessary.
Take Advantage of the Corporate Interest Restriction
The corporate interest restriction allows companies to claim relief on the interest costs incurred on loans used to fund their business operations. This can help to reduce your corporation tax liability by decreasing the taxable profits of your company.
Make Use of the Structures and Buildings Allowance
The structures and buildings allowance allows companies to claim tax relief on the costs of constructing or renovating non-residential buildings. This can help to reduce your corporation tax liability by decreasing the taxable profits of your company.
Utilize the Annual Tax on Enveloped Dwellings
The annual tax on enveloped dwellings is a tax levied on properties held by companies. By transferring ownership of such properties to individuals, companies can reduce their corporation tax liability.
Conclusion
In conclusion, there are a number of legal ways to reduce your UK corporation tax. By considering the options available to you and seeking professional advice when necessary, you can help to minimize your corporation tax liability and maximize your profits. Whether you are looking to take advantage of tax credits and allowances, transfer profits to a low-tax jurisdiction, or utilize tax incentives for specific industries, there are a range of opportunities available to help you achieve long-term business success.
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