Corporation Tax is part of running a Limited Company business, however, understanding how this essential tax works is key in making sure you reduce your corporation tax bill......
In this video we'll go into the 5 easy ways you can reduce your corporation tax bill legally.
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⏱️ Time Stamps:
0:45 - What exactly is Corporation Tax?
1:48 - Keeping detailed records
3:05 - Paying a directors salary
4:27 - Investing in your business
6:15 - Pension contributions
7:14 - Claiming legitimate expenses
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The current rate for corporation tax is 19%, the same as last year. This means that for every £100 of profit your company makes, HMRC will expect to receive £19. While there is sadly no way to avoid paying Corporation Tax altogether, we've put together this video to explain the 5 best ways to reduce your overall corporation tax bill.
1) Keep detailed records. You'd be surprised just how much the little things add up to when not properly recorded. Allowable expenses that you might deem as insignificant can quickly amount to a sizeable amount which you could have saved had you recorded it properly through your business bank account. Accounting software such as Xero can help facilitate this by scanning receipts with your smartphone and storing them on the cloud.
2) Paying a directors salary. Quite often, you will be a director and a shareholder of your Limited company. There may be multiple directors and shareholders and the good news is, you as a director/shareholder have the option of paying yourself via salary or dividends, or a combination of both. Dividends are paid out to you the shareholder from profits post corporation tax. So they do not obtain corporation tax relief whereas directors salaries are an allowable expense and will reduce the overall corporation tax bill.
3) Investing in your business. When you invest in plant, machinery and fixtures & fittings for your business the typical way to account for that new asset is to spread the cost of it over a number of years as its value depreciates.
Now, plant or machinery does not only relate to heavy industrial plant but includes modern hardware such as laptops and printers. Fixtures and fittings include items such as desks and chairs as an example. For tax purposes your company can utilise a form of capital allowance called the annual investment allowance. This is currently up to £1M however, this is set to reduce to £200,000 in January 2022, still a sizeable amount of investment that you could make to ultimately reduce your corporation tax bill.
4) Pension contributions. Your Limited company can make pension contributions on behalf of you ,the directors, and your PAYE Employees. Pension contributions are allowable for corporation tax purposes so every £100 contributed to a pension scheme directly, that is Gross from your limited company into an approved pension scheme will save £19 of corporation tax in the 2021-22 tax year for your company.
5) Claim allowable expenses. There are a great many things you can claim as expenses for your limited company or small business. The hard and fast rule is that whatever you claim must be "wholly and exclusively" for business use. Things such as client entertaining, for example, would not fall under this category and thus, not be claimable.
We hope this video develops your understanding on how you might reduce your corporation tax bill. Be sure to let us know in the comments if we were able to help you out as well as what you'd like to see from our channel in the future!
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Me & my team are dedicated to helping and empowering YOU to 'Know Your Numbers' so you can make calculated and informed decisions in your business, company and personal finances towards your definition of success.
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Our videos are for general guidance, education and empowerment in helping you understand accounting, tax and your numbers. They in no way constitute specific advice to your specific circumstances. Me & my team would be delighted to help you with your specific queries or accounting requirements through a formal engagement.
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9 июн 2024
