How to Reduce Corporation Tax in the UK?

reduce corporation tax

This is thought to be a tricky practice when you aim to reduce your tax amount in the bills. This is the indication of the most liable individual and the business owner to pay the tax amount exactly what they owe to HMRC according to their tax bills. However, the desire of knowing how to reduce corporation tax bills in the UK is equally high among people. At least not to pay more than what is actually required as per the tax rules. In the tax year 2023, the percentage of corporation tax on business profits is known to be 19%. Here we can take the instance of a business that earns an amount of £ 100,000 as a profit annually. The corporation tax on this business profit will be an amount of £19,000 according to the set of rules.

However, from the ninth of April in the tax year 2023, if the amount of the profits annually is £250,000, the tax rate will be 25%. There are several queries regarding this topic, this guide will be a comprehensive post to gather the required information in this regard. The discussion covers the involvement of popular tips that will help to reduce corporation tax bills. This includes how staying on top of tax payments can help, how buying through your limited company can be tax efficient, how to pay yourself the salary, and how claiming all the business expenses will reduce the number of tax payments. Let us kick-start the discussion with the basics.


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Tips to Reduce Corporation Tax in the UK

The key factor for reducing your tax payment in the bill is to make a claim for each and every allowable expense in the business journey. This will help to let you know a clear financial position of your business and what is your financial health as well. Let us assume that you have equipment that you required in the amount of £5,000, however, later you forgot to make the claim for this amount.

Now your profits will have the issue of being overstated by the figure £5,000. This means you will have to pay a little extra in the form of corporation tax. The extra amount will be £950. The situation of every industry will be different and there can be possible allowable expenses and other deductions. Every owner belonging to any kind of industry must have the awareness of a few basics to avoid paying extra tax. In the following, we have outlined the popular tips to be at the top of the tax game.


1- Stay On Top of Your Tax Payments

If you manage to pay the tax bills early, a little chunk of this payment is given back in form of the interest from HMRC. This will help you to keep your tax game on top and manage it at your full capacity. There are several other benefits of paying the corporation tax early.


2- Be Tax Efficient by Buying Through Your Company

Sometimes you need to renew your business kit which might require a new laptop or a mobile phone purely for business purposes. Do you know how to handle such a scenario in the most tax-efficient way? Get the purchasing of your new business kit done through your limited company. Moreover, sometimes you are in need of hefty equipment which can be a business asset of your new business promise. The government’s annual investment allowance is the solution to such a requirement which will help you to be tax efficient again.


3- Get into the Habit of Paying Yourself the Salary

When you are carrying out your business activities through a limited company, you mostly end to forget that the company has the place of being a separate entity. The amount of money that your accounts have is not yours. This will bring in the sense of paying yourself the salary. This salary will be considered a business expense. This will help to reduce the number of profits you earn and this will directly help to reduce the amount of corporation tax in the bills.


4- Claim Everything that is Considered to Be a Business Expense

To make the claim you will have to stick to the HMRC’s “wholly and exclusively” rule. This means that the allowable expenses are only considered when they are purely related to the business needs. Moreover, this is imperative to understand here that professional insurance and pension contributions are not considered allowable expenses for a business. However, what you can do is get this paid through the company accounts rather than paying them from your personal accounts. This will be helpful to reduce the amount in your tax bills again.


The Bottom Line

Now that you have gathered a fair amount of information about how to reduce corporation tax in the UK, we can bring the discussion towards wrapping up. There are several ways to get the amount reduced in your tax bills. However, you will have to be considerate about choosing them according to the needs of your unique circumstances and business position. Otherwise, you will find yourself in a position to pay more tax than what you actually owe to HMRC. Some popular tips to stay on top of your tax games are suggested by professionals as well. This will help you to make the right and suitable choices to avoid paying an extra amount of taxes in the future.


Get in touch with our young, clever, and tech-driven professionals if you want to choose the solution to tax burden or accounting problems in the UK  for your income. We will ensure to offer the best services.


Disclaimer: The information about the tax on how to reduce corporation tax in the UK provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.