What is Corporation tax?

Corporation tax is paid by UK limited companies and some other organisations. It is based on the annual profits that a company makes. All profits are taxable however, certain specific expenses can be deducted, and there are allowances you can make use of to help reduce your tax liability.

Who pays Corporation Tax?

Corporation tax has to be paid by all Uk limited companies. Sole traders and partnerships don’t pay corporation tax, instead, they have to fill out a tax return and apple income tax to their earnings.

How can you reduce CT? Here are some of our tips.

Research and development

If your business is involved in any type of innovation or carries out some form of research and development, you may be able to claim tax relief with R&D Tax Relief.

You may be surprised at what can constitute “R&D” or “Innovation” so it’s worth exploring.

Patent Box

Government statics highlight that many eligible companies are missing out on the benefits of the Patent Box system.

Salary sacrifice schemes

These allow you to give tax-free benefits, such as childcare vouchers, mobile phones or bikes to your staff, and yourself

It may not cut your corporation tax bill, but It can cut the amount of National Insurance contributions you need to pay.

Paying your self-tax efficiently

It may be worth looking at whether you want to reduce your corporation tax bill at all. If you want to take a lot of money out of your business, it may be more tax-efficient to take a share of the profits, rather than draw a salary.

Shareholders in the company can draw a dividend. Their pat of the profits. You may have to pay income tax on that dividend, but overall you might be slightly better off as you won’t have to pay NI contributions on it.

The is particularly true for higher earners, who are liable to pay up to 45% income tax, plus NICs.