Change in the UK’s corporation tax rate: How to reduce your tax burden in 2023

/ Posted By - Bradleys Accountants / Categories - Tax Planning

Starting April 2023, the UK government has raised the corporation tax main rate from 19% to 25% for companies making more than £250,000 in taxable profits. However, the rate for small companies making profits of £50,000 or less remains at 19%.

The effective tax rate on companies making between £50,000 and £250,000 in profit is tapered from 25% and where you can claim Marginal Relief dependent upon the profit amount. The closer you are to £250,000, the lower the Marginal Relief is.

Unsurprisingly, companies of all sizes are keener than ever to bring down their corporation tax liabilities in the UK, and accountants who can advise companies on this will be more in demand than ever. Here, our corporate tax accountants break down some ways for your company to bring down its tax burden:

1. Claim any loss relief

There are several types of loss relief your company can claim. Sometimes, you can carry the loss back to a previous year to get a tax refund or carry it forward against a future year’s profit. If you have a separate company that is making a loss, you can bring them together as a group company structure so that you can surrender the loss of one to another.

2. Claim R&D tax relief

Companies engaged in developing new or improved products or processes, or hiring technical staff to solve technical challenges, can apply for R&D tax relief. This relief can reduce corporation tax liabilities in the UK by around £25,000 for every £100,000 invested in research and development.

3. Charitable giving

Donations to registered charities can be deducted from your company’s taxable profits, reducing your corporation tax bill. This can be a great way to support worthy causes while benefiting your company financially.

4. Throw a staff party

An annual staff party boosts your employees’ morale and motivates them to do their best. Plus, a party that costs up to £150 per head is tax-deductible for the company.

5. Claim business mileage

Employees who use their personal vehicles for business purposes can claim 45p per mile for up to 10,000 miles annually and 25p per mile for above 10,000 miles annually.

6. Buy plant and machinery

Under the Annual Investment Allowance, businesses can write off up to one million pounds worth of investment in plant and machinery. This allowance offers substantial tax savings for companies expanding or upgrading their equipment.

7. Claim business expenses

This might seem obvious, but you would be surprised how many directors cover expenses on behalf of the company and then forget to claim them! On that note, we recommend optimising your directors’ salaries by designing them as a tax-efficient mix of dividends and monthly salaries (dividends are still taxed at only 8.75% for Basic rate taxpayers, 33.75% for Higher rate taxpayers and 39.35% for Additional rate taxpayers).

8. Invest in Green initiatives

The UK government offers various incentives for businesses that invest in environmentally friendly initiatives, such as energy-efficient equipment, electric vehicles, and renewable energy sources. Taking advantage of these incentives can reduce your corporation tax liabilities in the UK and contribute to a greener future.

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    9. Utilise Capital allowances

    Capital allowances can be claimed on certain assets purchased for business use, such as vehicles, tools, and equipment. These allowances can provide tax relief by reducing taxable profits, allowing your company to save on the corporation tax in the UK.

    10. Make pension contributions

    Companies that make contributions to their employees’ pension schemes prior to the end of the accounting period can get a deduction from their profits.

    11. Claim allowances on property

    Commercial property owners can claim a 3% straight line writing down allowance on building expenses. This claim extends beyond the period in which costs were incurred, allowing businesses to claim missed allowances from previous years, sometimes even dating back to when the property was first acquired.

    12. Claim employee training costs

    Any training and subscription costs for your employees are not subject to tax, allowing you to save money and build a more skilled team.

    13. Take advantage of the Patent Box

    The Patent Box was designed to encourage investments in new innovations and technologies and allows qualifying companies to benefit from a lower corporation tax rate of 10% on profits generated from patented income. Coupled with the R&D allowance, this gives you a generous amount of relief.

    14. Claim work-from-home allowance

    HMRC allows companies to claim a certain percentage of their home expenses to cover the heating and lighting expenses incurred when using a home office, as well as telephone lines and internet access costs. Ask an accountant about which costs are eligible and up to what limits.

    15. Claim reliefs for creative industries

    Eight tax reliefs, including Video Games Tax Relief, are available for companies in creative industries. These reliefs allow for reduced corporation tax rates in the UK and can provide substantial savings for qualifying businesses.

    16. Offer share schemes to your employees

    Share schemes are an excellent way to incentivise your employees to bring the best out of them and make you eligible for a corporation tax deduction.

    Do not miss any deadlines!

    For most types of corporation tax relief, the deadline is two years from the end of the accounting period in question. Be sure to file your claims on time so you do not miss out on your full entitlement.

    Seek professional advice

    Consulting with a professional accountant or tax advisor like Bradleys Accountants can help you identify additional tax-saving opportunities tailored to your company’s specific circumstances. We can also ensure you comply with all tax regulations and requirements, minimising the risk of penalties or fines.

    To ensure optimal tax return calculations, it is crucial to prepare accurate company accounts and file taxes promptly, taking into account potential changes in corporation tax relief and rates on an annual basis. This involves leveraging all available exemptions, deductions, and allowances.

    Fortunately, you can trust our team of accountants to manage this process for you. We will handle all technical guidance required for your small business and collaborate with you closely to comprehend your unique circumstances. We aim to minimise your tax liability while structuring your business for risk mitigation and growth.

    Over to you

    The recent changes in the UK’s corporation tax landscape have significantly impacted companies of all sizes. However, by employing the strategies outlined in this article and seeking professional advice, businesses can effectively navigate this new landscape and minimise their tax burdens.

    Whether investing in R&D, making pension contributions, or claiming allowances on a property, there are many ways to reduce your company’s corporation tax liabilities and ensure its continued financial success. And Bradleys Accountants are with you every step of the way. Contact us.

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