Corporation tax planning for SMEs

All business owners will be familiar with paying tax on their profits, and that probably gives you a good idea of what we’re talking about – corporation tax. 

Companies pay corporation tax at 19% on all profits in 2018/19. It may seem high, but this rate is actually one of the lowest in the developed world – and it’s set to fall further to 17% for 2020/21. 

Despite that, if your business is making profits from buying or selling goods and services, or advertising or renting a property, it will be liable to pay corporation tax. 

Less than a month  into the new tax year, there’s no better time to plan your business’s taxes in the months ahead.

Dunkley’s can handle your corporation tax obligations by applying a variety of reliefs that may be available to reduce what your business owes HMRC.

What reliefs can lower my corporation tax bill?

Small businesses can take advantage of the research and development (R&D) scheme, which offers relief on 230% of qualifying R&D costs.

It allows your business to deduct 130% of your qualifying costs from your annual profits on top of the standard 100% deduction.

In certain circumstances, loss-making companies can surrender their losses in return for a payable tax credit worth up to 14.5% of the loss rather than paying corporation tax at 19%.

To be classed as a small business and potentially be eligible for this relief, you must employ less than 500 staff, have annual turnover of less than €100 million or a balance sheet total under €86 million.

If you fail to meet these criteria, you may qualify for the research and development expenditure credit (RDEC) which offers larger companies tax relief of 12% on qualifying R&D costs.

How about allowances to reduce corporation tax?

If your business has any vehicles, equipment or machinery, we should be able to apply for capital allowances to deduct all or some value of the items from your profits before you pay tax.

Capital allowances also extend to companies that have renovated business premises in disadvantaged areas, as well as businesses involved in mineral extraction or dredging. 

Are there corporation tax reliefs for inventions?

Yes, there are. The patent box enables incorporated companies to reduce their corporation tax rate from 19% to 10% on any qualifying patents or similar intellectual property.  

Your business must hold and receive an income from a qualifying patent or other qualifying intellectual property, and be elected into the patent box regime. 

To determine if your business is eligible for the relief, we apply a complex calculation based on the profits which are subject to the scheme. 

Want to know more?

Dunkley’s will help you stay ahead of the game when it comes to corporation tax, saving you time and (where possible) ensuring more of your profits stay out of the taxman’s hands. 

Find out how our team of experts can help your business by calling 01454 619900 or email us at advice@dunkleys.accountants to find out more.

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