10 legal ways to reduce your corporation tax bill  

 Whilst paying tax is a sign that your Limited company is profitable, not many business owners want to pay more tax than they must. And most business owners we work with are keen to discover legitimate ways to reduce their Corporation Tax bill. 

 Here are our top 10 ways to save Corporation Tax legally. 

1 . Claim EVERY expense you’re allowed. 

If you’re failing to claim your expenses, you’re basically throwing money away. Here’s why… You’re losing out on tax relief gained from your expense claim and paying more Corporation Tax than you need to. 

 Example – if you spend £500 on marketing materials and fail to claim them as a business expense, you are paying at least £95 too much tax and maybe as much as £125. 

 If you purchase a new piece of equipment for £5,000 but forget to claim the capital allowance you are entitled to, your profits will be overinflated – and you could end up paying an extra £1,250 in Corporation Tax. 

Remember that to stay compliant with HMRC, your expense must be “wholly and exclusively” for the purpose of the business, 

2. Get a company mobile phone. 

Sounds simple, but you’ll be amazed how many people don’t put their mobile phones in the name of their business. If you do, every phone-related cost is tax-deductible and there is no benefit in kind for the individual. 

3. Claim mileage. 

It’s usually more tax-efficient for business owners to run their own vehicle and claim back mileage using HMRC’s official authorised mileage rate. For limited company owners, doing this will often help you avoid paying higher rates of tax on company cars. 

 Example – you travel 100 miles on a round trip for business in your own car. You can claim £45 in expenses for mileage, which can save your company a minimum if £8.55 Corporation Tax, 

 4. Buy some books or magazines. 

If you need a technical manual or book which relates specifically to the activities of your work, you can claim these through the business.  But don’t buy a book or magazine which is for your own personal benefit (or that won’t help you develop a new skill) as an item like this is not tax-deductible. 

5.  Throw a party. 

As a limited company, you can treat your team members to an annual ‘party’ (not just at Christmas) and reclaim up to the value of £150 for each guest – including VAT. 

Because the limit applies to each guest, you could invite your partner to enjoy a night out completely tax-free. But don’t get carried away and invite all your family and friends because HMRC will not view this as a ‘staff’ party. 

 You’ll also be able to claim Corporation Tax relief on the overall cost without there being a “benefit-in-kind” charge.  

 6. Pay yourself a salary. 

As a genuine business expense, paying a salary will reduce your profit – and Corporation Tax bill. 

 It’s not for everyone, particularly if you’ve got income from elsewhere, but it can be a tactic that’s worth using. You could also pay your spouse a salary to make use of their personal allowance and basic rate tax bands, but this is dependent on their other levels of income. 

 7. Put money in your pension pot. 

Paying into a pension is extremely tax efficient and can save you Corporation Tax. You cannot create a loss with a pension contribution, so limits do apply. 

 Example – making a pension contribution through the company of £5,000, doesn’t only save for your future, but gives you Corporation Tax relief of up to £1,250. 

 8. Get tax-free income protection. 

Income protection insurance can be invaluable for small business owners. Should the worst happen and you’re unable to work, it can safeguard your family and allow you to maintain the lifestyle you’re accustomed to. Paying the premium out of your company (not your taxed income) is a perfectly legal way to reduce corporation tax – and protect your income! 

 If you would like to explore this option, we can put you in touch with a specialist advisor. 

 9. Surprise HMRC with an early payment. 

If you can pay your tax liabilities early, HMRC will usually reward you by paying interest on the amount paid for settling early. 

 10. Get a good accountant. 

You didn’t set your business up to become a bookkeeper or accountant. If you are honest, you are probably not the best person to be completing the VAT, bookkeeping or payroll. 

 Engaging professional support will save you time and they can probably identify more ways to save you tax. There will be fees to pay to access expert advice, but you will normally save more than you pay out in Accountancy fees and remember their fees are also tax deductible. 

 Example – your accountant charges you £2,400 per annum. After Corporation tax savings your accountants’ fees are £1,800 at most and assuming they can identify £1,800 of savings or more using points 1-9 or any other ideas they have up their sleeves, professional advice could cost you nothing!

Want to explore how you can save Corporation tax and stay on the right side of HMRC, then contact us on letschat:bean-sprout.co.uk