Running a business can be tough, and one of the biggest challenges is dealing with taxes. Corporation tax is a tax that companies have to pay on their profits, and in 2023, the rates are going up. Business owners need to get smart about finding legal ways to pay less tax. By reducing the corporation tax your company pays, you can have more money to invest back into your business and help it grow.

This article will review ten tips companies can use to lower their tax bills.

Know the New Corporation Tax rates

First, it's important to understand how much corporation tax you might have to pay. As of April 2023, the amount of tax you pay depends on how much profit your company makes:

  • If your profits are under £50,000, you'll pay 19%
  • If your profits are between £50,000 and £250,000, you'll pay a bit more
  • If your profits are over £250,000, you'll pay 25% on all your profits
  • It's important to note that if you have multiple connected companies, you'll have to share these profit limits between them. So, you can't avoid paying the higher rates just by splitting your business into smaller companies.

Pay into your company's Pension Plan

One way to reduce your corporation tax bill is to pay money into your company's pension plan. You can claim that money back as a tax relief when you do this. In the 2023/2024 tax year, you can pay up to £60,000 into pension plans, which can make a big difference to your tax bill.

Lend money to your company

If you're a limited company director, you can lend money to your business and charge interest on that loan. Your interest counts as a business expense, meaning your company pays less tax. Just make sure the interest rate you charge is fair and reasonable in the eyes of HMRC (the UK's tax authority).

Make the most of capital allowances

When your company buys equipment, machinery, or vehicles for the business, you can claim a "capital allowance." This means you can deduct the cost of these items from your profits over time, reducing your tax bill. Some special allowances also let you deduct the full cost of an item from your profits in the first year.

Keep track of all your business expenses

Make sure you have a good system to keep track of all your business expenses, no matter how small. Things like business travel, work-related subscriptions, and assets you use for work can all be deducted from your profits, which means you pay less tax.

Claim tax credits for research and development

If your company spends money on developing new and innovative products, processes, or services, you can get some money back from the government. A scheme called "R&D tax relief" lets you claim back up to 33.5% of the costs of your research and development. This is a great way to get financial help, invest in new ideas, and grow your business.

Look into other Special Tax reliefs

There are a number of other special tax reliefs that companies can claim if they meet certain criteria. For example, there are tax breaks for creative industries and a "patent box" scheme that can reduce your tax if your company makes money from patented inventions.

Pay your Corporation Tax early

If you pay your corporation tax bill before the deadline, HMRC will pay you some interest. It's not a lot, but it's still money in your pocket. Remember that you'll have to pay tax on any interest you receive.

Hire family members

If you hire your partner, children, or parents to work for your company, you can pay them a salary instead of taking that money out of the company as dividends. Salaries count as a business expense, which reduces your profits and, therefore, your corporation tax bill.

Don't miss tax deadlines

This one might seem obvious, but it's really important. Ensure you file your tax return and pay your tax bill on time. If you're late, you'll have to pay extra charges and interest, which eats into your profits.

Planning and getting good advice is the key to paying less corporation tax. Talk to a business tax accountant about legitimate ways to reduce your tax bill, and always be fully honest with HMRC about your company's finances. By following these tips, you can keep more of your hard-earned profits and reinvest them to improve your business.

Remember, paying taxes is a part of doing business, but there's no reason to pay more than you must. By understanding the rules, keeping good records, and claiming all the allowances and reliefs you're entitled to, you can be a savvy business owner and keep your corporation tax bill under control.

It might seem like a lot but don't worry. You don't have to be a tax expert to run a successful business. Take things one step at a time, ask for help when needed, and always stay on top of your deadlines. With some planning and smart strategies, you can navigate the world of corporation tax and come out on top.

So, whether you're just starting, or you've been in business for years, take some time to review your corporation tax strategy. See if there are any tips from this article that you can put into action. Even small changes can make a big difference over time, and every penny you save on tax is a penny you can put towards making your business dreams a reality.