TLC Loves: Reducing Your Corporation Tax Bills
18th February 2021
If you’re familiar with us here at TLC, you’ll know that we love helping our clients to reduce their corporation tax bills. For many clients the company year-end is fast approaching, so now is the time to take action and save on your corporation tax bill.
You’d be forgiven if your eye has wandered off the tax-saving ball during this strange year, but act now and you can claim crucial deductions in so many ways.
Here are some of our top tips for making the most of legitimate corporation tax relief:
Spend before year-end
Take stock of what’s in the company pot and where possible, do any spending before your year- end. As corporation tax is due nine months and one day after your year-end, buying in the new financial year means that you could wait that many months longer before feeling the benefits of tax relief.
Think about everything you need to purchase, from equipment, to cars (electric cars will go the extra mile in deductions, read more here) and ‘trivial benefits’ – all of these are explained here.
Pay into your pension
Company pensions are a great way to reduce the amount that you’ll spend on corporation tax. As a director of a limited company, the maximum you can contribute as an employee to a company pension is the lower of £40,000 or 100% of your salaried earnings. Employer pension contributions made by the company are also limited to £40,000 each year, but this can be topped up using the allowance from previous years where the limit has not been reached.
It’s generally best to pay into your pension by employer contributions (rather than a personal contribution), so that the money is not then paid out of your taxed income. We’re happy to help you to consider your personal circumstances, get in touch to arrange a chat.
Your company can claim tax relief if it makes charitable donations; we’ll simply deduct the value of the donations from your total profits, before paying tax. Donations can be contributed as money, equipment, or stock (made or sold by your company), land, property, or shares (these must be from another company), employees on secondment, or in the form of sponsorship payments.
No claim is too small!
From a young age, we’re taught to look after the pennies and the pounds will look after themselves, and this is also true when it comes to claiming through your company.
Become your own money saving expert and document everything the company spends – you’ll see the difference on your next tax bill. Don’t forget to use ReceiptBank to quickly and easily process your receipts, and TripCatcher to make sure your mileage is accounted for.
It’s definitely worth noting too that personal expenses and any use of home for business purposes all add up, so do keep on top of your day-to-day receipts and utility bills. We’ll go through this at your year-end with our “use of home” spreadsheet. Subsistence such as a coffee at the services on the way to a work meeting, plus work-related mileage, all count towards greater deductions.
Research Relevant Life cover
Relevant Life cover offers a tax efficient way for you to get a benefit via your limited company, which is also tax-deductible. It’s basically the small business version of a death in service benefit, and can be given to staff as well as directors.
Relevant Life cover is a great tax free perk as you don’t incur any benefit in kind as an individual even though the company pays the premiums. We’re not financial advisors though, so you’ll need to get proper advice from a qualified Independent Financial Advisor before taking out any insurance policies.
It pays to talk
If you have a number of employees using their personal mobiles for calls, consider switching to business mobiles in the company name and a business tariff, which will get your company a tax deduction and gives free calls to the team.
As directors of a limited company, you can claim your mobile phone costs, but only if the bill is in the company’s name. It’s well worth the hassle of switching to be able to deduct the legitimate expense from your Corporation Tax bill.
And finally… it also pays to party!
In more usual times when the Christmas party is the pinnacle of the work calendar, you’d be forgiven for not equating a festive bash with tax efficiency. However, you’ll be pleased to know that as long as you stick to the guidelines and the spend per employee head does not exceed £150, there is no benefit in kind, and you can claim a deduction for the expenditure. And the event doesn’t even have to be at Christmas. That deserves a toast! We’ve written a more detailed explanation of company parties and tax, here.
If you have any queries about your corporation tax bill or anything else about your accounts, our friendly team is always happy to help – drop us a line today.