Once you get towards the end of the year, one of the biggest payments your business will face is corporation tax. It is vital to stay ahead of the game and plan effectively to keep your bill down. Read on to discover some top tips for doing so.
Reduce or reclaim instalment payments – Big corporations are required to pay tax instalments, and these are calculated on their forecasted profits per annum. To discover whether you need to do this, you should speak to your accountant, nevertheless, broadly speaking, this applies to companies that have profits in excess of £1.5 million. One way to keep your bill down is to ensure you forecast on a regular basis and that you do so accurately, as this will allow you to lower your tax payments as soon as your profits begin to fall. In some instances, you can even claim a refund for excessive instalment payments.
Tax loss maximisation – When it comes to trading losses, anything up to £50,000 can be carried back against profits that were earned up to three years ago. This gives you the ability to secure a tax refund if you were making a profit previously.
Ensure you pay tax at the right rate – A lot of business owners end up paying more tax than is required because they are paying the wrong rate. It is imperative to determine what tax bracket you fall into, and this is something you constantly need to monitor, as your business’s eligibility for a tax relief may change. Don’t purposely pay a cheaper rate that is not right for you, though. If you do this, you will find yourself needing legal solicitors because you could end up with a huge battle on your hands for purposely evading tax. Everything needs to be above board.
Pay pension contributions before the year-end – In most cases, you can deduct pension contributions from your tax on a paid basis. Therefore, if you get your timing right, you will be able to accelerate the tax relief. This is why it is a good idea to make your contributions before the year-end, i.e. before your corporation tax bill is due.
Share awards or options deductions – When it comes to your business corporation tax bill, don’t overlook employee share options or share awards. This is something that is often missed, and thus a lot of businesses are missing out on a key tax relief. You will be able to receive a deduction, which will be for the amount that is the equivalent of the difference between the amount paid by the employee and the market value of the shares.
Claim research and development tax credits – Last but not least, another area whereby you can claim tax relief is in regards to research and development. A lot of companies assume this is a relief that they will not be eligible for, yet the definition of R&D is much broader than you may realise. Again, this is something your accountant should be able to assist with, so make sure you enquire about it.
To conclude, if you are looking to reduce your corporation tax bill, you should start by following the six pieces of advice that have been provided in this post.