Reducing Corporation Tax

What is Corporation Tax? 

Corporation Tax is the tax that is due on business profits and on any gains made from investments or from a business selling its assets. It applies to all UK limited companies (plus foreign companies with UK offices) and is collected by the government.

If your company is registered with Companies House, you will be paying Corporation Tax at the rate appropriate to your company profits. However, there are various ways you can reduce this liability, all within HMRC rules.

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How much is Corporation Tax?

The latest Corporation Tax rates are:

  • 25% for profits of £250,000 or over
  • 19% for profits of £50,000 or less

If business profit is between £50,000 and £250,000, the company can claim Marginal Relief which serves as a gradual increase in Corporation Tax rates from the lower rate of 19% up to 25%.

Certain business expenses are tax-deductible, such as rent for the business premises, property insurance, and day to day office-running costs. You can find a full list of HMRC allowable business expenses on the gov.uk website.

Reduce Corporation Tax

Successful business owners know that the more successful their business, the higher their Corporation Tax liability will be.

There are a number of legal ways that business owners can reduce their Corporation Tax bill. These include making additional pension contributions, making charitable contributions, and investing in research and development.

TLPI specialises in two products – the Small Self-Administered Scheme (SSAS) and the Family Investment Company – which company directors can utilise either on their own, or together as part of a Lifetime Business Tax Plan, to bring down their Corporation Tax bill.

Maintain business liquidity

In order to maintain a successful business and ensure continued growth, flexible cash flow is essential. However, using funds in the various ways outlined above leaves them tied up with no access to them for when you might need them.

The Small Self-Administered Scheme (SSAS) and the Family Investment Company are unique tax planning products, which, whether alone or combined, can help you significantly reduce your Corporation Tax bill without reducing essential cash-flow.

One of the unique features of the SSAS pension is the SSAS Loanback which allows you to loan up to 50% of your pension to your trading company for any business purpose. You can find out more about this feature and all the other ways to reduce Corporation Tax without affecting business liquidity by viewing our Fact File here.

Invest in property

Unlike a traditional pension, the SSAS can invest in property. This means you could use your SSAS to purchase your business premises – an allowable business expense – and then pay rent back into your pension. Not only will this help you reduce your balance sheet, thus reducing your Corporation Tax bill, but it also gives you the control of being your own landlord.

You can find out more about using your pension to invest in property here.

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