Reducing Corporation Tax Legally
Approaching your year end as a director of a limited company can be a challenging prospect. This could be due to all your obligations, getting your company accounts ready and submitted. On top of this, you must then pay the Corporation Tax liability. Ensuring you pay the right amount of tax by including legitimate expenses can be a challenge. Remember you must remain outside of the grey and make sure only allowable expenses are included in the company accounts. This article highlights some allowable expenses which are often not included or missed.
Business Expenses to consider reducing your Taxable Profit:
Pensions
- If you are a Limited Company: Pension Contributions – the pension can be via NEST or made directly into a private pension scheme, if the payment has left your business bank account, then it is an allowable business expense and will reduce your CT. If paying into a private pension scheme it must accept Employers Contributions and cannot be for more than what your salary is unless for a specific commercial reason. If you already have a NEST Pension set up then we can organise a lump sum to be collected, on your instructions, over and above what you are normally paying.
- If you are a sole trader or partnership and are a higher rate taxpayer – paying into your pension scheme will extend your basic rate band and you will pay less personal taxation.
Electric Cars or other ZERO Emission Vehicles
- Purchase of Electric Cars (or other ZERO emission vehicle)- to claim a FYA (first year allowance) the vehicle must be:
- Brand New
- Purchased on Hire Purchase or Cash (not Lease Purchase/Hire)
- For use by a specific employee or Office Holder of the business
Potential Other Expenses to Claim
- Gym Membership/Health Care/Private Health Insurance/Dental Plan/Golf Membership – these can be put through the business to reduce the profits and ultimately the CT, however these will generate a benefit in kind on your personal tax return and any benefits will attract a 13.8% Class 1A NIC charge
- An annual event – for employees or Office Holders, costing no more than £150 per head, if it is more than this then the entire amount will be chargeable
- Client gifts – no more than £50 and not food or alcohol
- Claim business mileage if you use your personal car or motorbike for business use
- Claim all business expenses – talk to us if you are unsure whether you are claiming everything
- Put through Directors Wages if you have no other income course (if Limited)
Health and Welfare
- Eye Health – one eye check per year, if the glasses are for VDU work only then they can be claimed in full through the business
- One off Health Checkups or Health Screenings per annum – HMRC defines health screenings as an assessment aimed at ‘identifying employees or Office Holders who might be at a particular risk of ill health’
Trivial Benefits
- Trivial Benefits – £50 per purchase per employee with no limitations in the tax year (£300 limitation for Directors) – not received as part of the contract and not for a reward or gratuity.
Investments in Capital Items
- Investment in Plant and Machinery or Computer Equipment
Insurance
- Put through relevant life insurance through the business (if Limited)
- Income Protection Insurance for Directors (if Limited)
Charity Donations and Sponsorships
- Charitable donations (if Limited) and you have sufficient profits after tax – should be made through your Company.
- If you are a higher rate taxpayer then donate personally using gift aid (this will extend your basic rate band)
- Sponsorship -the business must get something in return for this to be treated as a business expense and a deduction to profits
https://www.gov.uk/tax-limited-company-gives-to-charity
This list is by no means exhaustive, if you have any questions or queries or require a meeting with us to discuss any of the above or other items you may be thinking about, then please call us on 02380 323846 or email us for a free initial consultation on accounts@jsrmanagement.co.uk
Want to find out more about Reducing Your Corporation Tax? Get in touch
By Sue Robertson
