The Best Way to Reduce Your Business’ Tax Bill

Running a profitable business currently requires a lot of acumen in decision-making. For instance, it is prudent to settle for a Ford Transit Custom lease found here rather than buy a vehicle for deliveries or your employees’ transportation. The decision means foregoing costly repair and maintenance costs while benefiting from the latest transport vans on the market.

Another expense that might cripple your business when not carefully thought out is taxes. In the UK, the government instituted corporation tax breaks to keep businesses afloat. Nonetheless, on 1st April 2023, corporation tax for companies with profits above 50,000 pounds will increase from 19% to 25%.

While you can institute any of these measures to cushion your business from the tax increase in 2023, you need additional steps to reduce your tax bill further. Below are a few legal and effective ways of reducing the taxes your business owes.

Pay Yourself a Salary

Most sole proprietors forget that their businesses are separate legal entities. The business’ money is not yours to use. As such, for you to lay your hands on it, you should pay yourself a salary. The salary is considered your business expense. This, in turn, reduces your taxable profits and corporation tax.

Keep in mind that most business owners will pay themselves dividends and salaries. The dividends are drawn from your profits, so you should prove you have profits before issuing dividends. If you do not do this, HMRC {Her Majesty’s Revenue and Customs} will often reclassify the dividends as salary. This means your dividends will be subject to national insurance and income tax.

Purchase Items through Your Company

When you need something like a desk or laptop for your company, do not buy it as a personal purchase. Buy anything that will be used in your business through the company. This will be counted as a business expense and reduce your corporation tax. When buying large equipment or business premises, consider using the Government’s Annual Investment Allowance to reduce your taxes.

Claim a Work-From-Home Allowance

Most businesses have moved some or most of their operations online. This has made it possible for employees to work from home. If any of your workers are handling tasks from home, claim a part of them at-home costs for tax breaks. Any supplies, services, and equipment that you give your employees, along with any household expenses like the internet that you pay for remote workers, can be claimed for a tax break.

Use the Creative Industries Tax Relief If It Applies To You

If you work in the creative sector, the government has some tax relief schemes to reduce your corporation tax. They include film, animation, high-end, video games, children’s television, orchestra, museums & galleries exhibition, and theatre tax relief schemes. For your company to be eligible for these tax breaks, you should have produced a qualifying program, video game, theatrical production, exhibition, orchestral concert, or film.

Claim the Research and Development Tax Credits

If your company handled a project that involved inventive steps to solve a scientific or technical uncertainty, you can claim the research and development tax credit. This encompasses the creation of a new process or service as well as enhancing an existing product or service. The tax credit can be paid as a lump sum or decrease your corporation tax. The amount your company is eligible for will depend on your company’s size, your profit or loss, and corporation tax position.

Taxes are among the most complicated things you will face as a business owner. You know from the above tips that reducing your corporation tax only takes some knowledge of the tax system and some diligence. This way, you can maximize your profits and ensure your company’s continuity and expansion.

Author: Editorial Team

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