Tips To Reduce Your Corporation Tax (The Legal Way)

Several perfectly legitimate ways to do it

COVID-19 has hammered UK businesses for almost a year now with many looking to reduce their Corporation Tax bill wherever possible. Here we’ve put together some tips so your company can avoid paying any more tax than it needs to.

Take advantage of capital allowances relating to property

Companies can claim a 3% straight line writing down allowance when purchasing new commercial property. A key requirement is that the building or structure must be used in a qualifying activity (such as a trade, as part of a property business, a professional service or a holiday let). The claimant must also have an interest (leasehold or freehold) in the land the asset sits on.

The relief kicks in from when the structure or building starts to be used for any eligible activity.

See the Gov.uk website for more detailed information: Claiming capital allowances for structures and buildings.

Check if Patent Box tax relief is due

If your company is turning a profit thanks to a patented invention then another highly generous relief available is Patent Box tax relief. Essentially it allows you to claim a preferential rate of 10% Corporation Tax on profits derived from patented products.

All UK limited companies that are subject to UK Corporation Tax can apply. The essential requirement is that the company devised an innovative product or process, patented it, and subsequently made profits from the patented invention.

A point we want to stress here however is that even the smallest of inventions can attract the relief, as long as they are patented. Over our years in business we’ve found that many companies haven’t gone ahead with patenting their intellectual property. This is because they either don’t know their invention is patentable, or think that the patenting process is too expensive. However, the Patent Box relief scheme is specifically designed to overcome these misconceptions and the relief awarded will typically far outweigh the costs.

This post, A Guide To The UK Patent Box is well worth a read.

Developing video games? Claim Video Games Tax Relief

Many creative industries have been hardest hit by the pandemic but several generous tax reliefs are available to help. One of them is Video Games Tax Relief (VGTR) which allows video games companies to claim relief on their Corporation Tax in a similar way to R&D Tax Credits.

If your company plans, designs or tests video games then VGTR could be for you. See our VGTR page.

Maximise company pension contributions

This is a quick win that not only reduces your Corporation Tax bill now but has financial benefits later on. By putting as much money as possible into a pension scheme you will either receive tax relief on your personal contributions or reduce the Corporation Tax paid on your profits (which one will depend on the selected pension scheme).

Receive tax relief on homeworking costs

This one’s a case of every little helps. But if you normally work onsite for a client and only use your home office for business admin, you can claim £6 per week (or £26 per month) for incidental home expenses. Yes £312 a year isn’t earth shattering, but it’s still worth having especially if your business is still small.

Invest in plant and machinery

Businesses must grow if they’re to stand any chance of surviving long term. Companies that purchase certain business assets like plant and machinery can be eligible to claim the Annual Investment Allowance (AIA) providing immediate relief on qualifying purchases up to a specified limit. Back in January 2019, this limit was increased to £1 million, meaning businesses investing in applicable apparatus can now write off a large amount of the investment against their profits.

Let the company pay for training costs and subscriptions

As long as the training and subscription costs in question relate to the company’s business activities, the company should pay for them - not the employee. As the costs themselves are tax deductible, the net result is tax free development for your staff, and a reduced tax bill for you.

Offer share schemes

A Corporation Tax deduction can often be claimed when a company offers share schemes to their employees. Not only does this reduce the liability for Corporate Tax, but it’s also a useful way to reward and incentivise people. There are a number of share schemes out there, so we recommend seeking advice as to which one best fits your company. Although our teams don’t deal with this area of accountancy directly (we solely work in R&D funding) we can certainly point you in the right direction.

Claim R&D Tax Credits

Not claiming R&D Tax Credits when eligible can easily mean your company misses out on tens of thousands of pounds. Essentially, if your business has looked to solve a specific technological or scientific uncertainty, for example by developing new or improved processes, products or software then listen up: It’s likely you Corporation Tax bill could be reduced by as much as 33 pence for every £1 of R&D expenditure.

If you’ve additionally spent out on research facilities or equipment, Research and Development Allowances (RDAs) may also apply.

These reliefs are valuable indeed, and the Myriad Associates team (the R&D professionals behind Tax Cloud) have a 100% claim success rate in helping our clients claim first time. Find out more about R&D Tax Credits now.

How to claim R&D Tax Credits

The Tax Cloud portal is the easiest, most cost-effective way to claim R&D Tax Credits without the headache. It’s free to sign up, and once you’ve entered a few details about your company and your R&D figures it’s simply a case of following the steps and putting your claim together.

Once each step is complete, our team of R&D tax experts will check what you’ve submitted and comment where necessary. We will also help you put together a top quality technical narrative, as well as answer any questions you have along the way.

See our recent blog Why Your Business Needs Tax Cloud for more information.

Contact us

If you would like to discuss any aspect of R&D tax or funding, please do contact our team today. Don’t forget to sign up to the Tax Cloud portal too and see what you could claim. It could be the most lucrative move you make all year.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
Start your Tax Cloud claim now Discover if you qualify and ensure your R&D tax claim is maximised. Get started
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
JEan Rollinson Jean Rollinson Senior Technical Analyst/Writer
Rabia Mohammad Rabia Mohammad Corporate Tax Associate