What Corporation Tax Bill Is and How To Calculate and Reduce It

Corporation Tax Bill

What Corporation Tax Bill Is and How To Calculate and Reduce It

One of the most common and important questions many company directors ask is this — how does one reduce Corporation Tax Bill through allowable expenses?


For many business owners, dealing with your company’s finances can be incredibly daunting, especially when taxes come into the picture. When they dig deeper into their taxes and expenses, they will always bring up the perennial question we mentioned above. 


This is often discussed around ten to 11 months into the financial year when your annual profits and tax payables are in better view. 


If you want a quick answer right now, here it is — dealing with your corporation tax bill and allowable expenses ten to 11 months into the year is too late for you. With that being said, long-term tax planning and investment strategies should be considered so you can mitigate and offset your taxes.


But sadly, not all businesses have long-term visibility to plan beyond a year to three years. Fortunately, working with reliable tax consultants in London and following some strategies will allow some form of flexibility for your annual in-year tax mitigation. 


How Do You Reduce Corporation Tax?


Since corporation tax is based on your company’s profits, the obvious answer to reduce your taxes would reduce your profit. However, that sounds a bit contradicting, considering you’re running a company, and you want to remain profitable, right? 


The real challenge here is to make profits but keep the money in the business or getting it to shareholders in an effective tax-efficient manner. 


This can seem a bit tricky on the surface, but you’d be happy to know that there are four ways to reduce corporation tax while keeping the money you earned. 


  • Pension: Once you’ve utilized your personal allowance, a great way to get money to the people behind the business is by making regular one-off payments to your pension funds. However, you need to declare and pay cash into pensions before the year-end.
  • Investments: Business can also make investments, and putting your profits beyond reach for long periods can generate high interest.
  •  Donations or Corporate Social Responsibility: Business is keen to give something back and to help their local community or a cause.
  • Fixed Assets: Investing in machinery or freehold premises is a fantastic way to reduce taxable profits, and in some cases, there is an annual allowance that you can fully utilize. 


What Is Considered Not An Allowable Expense for Corporation Tax?


While the list of allowable expenses is not definitive, there is a common theme that can help reduce your corporation tax liabilities, and it’s through your allowance. 


A few items are added to your profit when calculating your corporation tax, and the most obvious is corporate hospitality or client entertainment. Any money that you spend on entertaining your clients automatically goes to reduced cash and not taxable profit. 


Seeing that there is no ceiling in allowances, it is best to speak to tax consultants in London to understand where your profit is going, how you can keep it, and reduce your tax payables. 


How Do You Calculate It?


Although higher accountants and tax consultants should deal with your taxes, it pays to know exactly how you calculate corporation tax. 


Fortunately, corporation tax has been simplified over the last decade. As a result, the trend sticks around the 20 percent mark, thanks to the more straightforward process and long-term rate. 


Basically, you want to the sum of your gross sales, deduct allowable expenses, and then divide the result by five. This will give you a ball-park figure for strategizing your purposes. 


The Bottom Line: There Are Ways to Keep Your Hard-Earned Profit and Keep Them Away from Your Corporation Tax Bill


When you own a business, your main goal is to ensure that your company remains profitable. Thankfully, there are several ways to reduce your corporation tax bill and get them to your shareholders and other owners instead of being piled up on taxes. 


Ideally, you want to work with credible tax consultants in London so you can properly strategize your financial goals and hit the right numbers while paying what is due.


Are You Looking For Tax Consultants in London?


Taxes can be incredibly intimidating, especially if you run a company. You need to consider a plethora of things that you might find yourself drowning in receipts and documents. But thanks to Accotax, taxes are now much easier to deal with. 


We are a team of highly experienced accountants and tax consultants who offer services for the self-employed, limited company, and contractors. Get an instant quote today!

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