Corporation tax is one of the most significant costs for limited companies across Surrey, Kent and Sussex. The main rate stands at 25% for companies with profits above £250,000. With some forward planning before your year end, there are legitimate and effective ways to reduce the amount your company pays.
1. Maximise pension contributions
Company pension contributions reduce your taxable profit pound for pound. For a company paying 25% corporation tax, a £10,000 pension contribution saves £2,500 in tax. Contributions must be made before your year end to count in that year's accounts. There is no employer's limit (subject to the individual's annual allowance), and the contributions attract no NI.
2. Bring forward capital expenditure
The Annual Investment Allowance (AIA) allows your company to deduct the full cost of qualifying plant and machinery in the year of purchase, up to £1 million. Purchasing equipment, vehicles or technology before your year end rather than after brings the tax saving forward by a full year.
3. Review and pay director bonuses
A director's bonus is deductible from corporation tax in the year it is accrued, provided it is paid within nine months of the year end. Declaring a bonus before your year end can reduce your current year's tax liability, though the bonus is subject to income tax and NI when paid.
4. Consider R&D tax credits
If your company has spent money developing new products, improving processes, or solving technical problems, you may be eligible for R&D tax relief. Under the merged scheme, qualifying companies can claim an enhanced deduction of 86% of qualifying costs, with a potential 10% payable credit for loss-making companies.
5. Check for losses
If your company has made a loss in the current period, it can be carried back against the previous year's profits (generating a repayment) or carried forward against future profits. Ensure your accountant has considered the optimal use of any losses.
Talk to us about your situation
Our chartered accountants work with small businesses, landlords and contractors across Surrey, Kent and Sussex. Get in touch for a free initial consultation.
