With the Corporation tax rate increasing from 19% to 25% in April 2023, more companies are feeling the squeeze each month. Combined with rising costs and an uncertain economic outlook, UK companies are navigating a tough fiscal landscape.
Given the current climate, businesses are now seeking ways to reduce their Corporation Tax liabilities, ensuring they don’t pay more than necessary. If you’re one of those companies, you’re in luck! There are plenty of opportunities to minimise your tax liabilities.
With so many ways to legitimately lower your tax burden, it’s tough to know where to start. That’s why we’re here to share some top options with you. This info should give you the resources you need to start cutting that corporate tax bill.
Claim R&D Tax Relief
R&D tax relief is a great government incentive that lets you save up to 27% on costs related to your Research & Development (R&D) projects, whether they’re completed or ongoing.
How do you qualify?
Your project must seek to make an advance in science or technology. It sounds impressive, but actually, many projects can qualify as making an advance.
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- The project must involve overcoming scientific or technological uncertainties.
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- The advance should contribute to the overall knowledge or capability in a field of science or technology, not just your company’s knowledge or capability.
Examples of qualifying R&D Projects
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- Creating a custom application or machine to solve your problem.
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- Developing a new software product.
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- Modifying your production line to boost productivity.
If you’re hiring skilled professionals to tackle technical challenges, you might be eligible to claim.
*The scheme has changed significantly over the past few years with a series of reforms, making it tricky to know which scheme you’re claiming for during a specific accounting period and what rates you’re eligible for. For example, since April 1, 2024, loss-making SMEs investing 30% or more on R&D can claim a higher rate of relief.
That’s why it’s a good idea to get help from an R&D tax specialist.If it sounds like you might be eligible for R&D tax relief but aren’t sure where to start, check out our guide on submitting an R&D tax credit claim in 2024, or get in touch with one of our experts today.
R&D Tax Allowance (RDA)
Unlike R&D tax credits that cover only revenue (operational) expenditure, making an RDA claim rewards innovative businesses for their capital expenditure in R&D efforts.
RDAs provide a 100% tax deduction for qualifying capital expenditure in the accounting period incurred. This includes costs for items such as computer hardware, equipment, buildings, and vehicles used for R&D purposes.
Key Benefits:
- Immediate tax relief: Businesses can reduce their taxable profits by the full cost of their capital expenditure on R&D in the year the costs are incurred, resulting in immediate tax savings.
- Broad eligibility: RDAs apply to a wide range of capital expenditures, making it easier for businesses to claim for various R&D-related investments.
- Enhanced financial planning: By claiming RDAs, businesses can better manage their cash flow and investment planning, knowing they can recoup the costs of significant R&D capital investments.
Creative Industries Tax Relief
The creative industry tax relief is a group of 8 Corporation tax relief schemes that allow qualifying companies to increase their allowable expenditure, lowering the amount of Corporation Tax the company needs to pay.
To apply, companies must:
- Be liable to Corporation Tax
- Directly take part in the production and development of qualifying activities
- And, in some instances, pass a cultural test.
What creative reliefs can you claim?
The following 8 reliefs may apply to your Company Tax Return:
- Film Tax Relief
- Animation Tax Relief
- High-end Television Tax Relief
- Video Games Tax Relief
- Children’s Television Tax Relief
- Theatre Tax Relief
- Orchestra Tax Relief
- Museums and Galleries Exhibition Tax Relief
Patent Box Tax Relief
Patent box tax relief is designed to reduce the significant costs of obtaining a “qualifying IP right” – most typically a patent. If granted, a company can apply a reduced corporation tax rate of 10% to worldwide profits arising from the invention.
We recommend that if you’re planning to lodge a patent for your product, then hire an informed tax advisor to see whether this scheme will be suitable for your business and, importantly, when it should be activated.
Maximising Capital Allowances
Capital allowances are a great form of tax relief, allowing businesses to deduct the value of certain assets from their profits before paying tax. Unlike R&D tax allowances, which cover capital expenditure directly related to R&D activities, capital allowances apply more broadly to various business assets.
What can you claim?
You can claim capital allowances on:
- Equipment
- Machinery
- Business Vehicles (e.g., vans, lorries, business cars)
These items are collectively known as “plant and machinery.”
Types of capital allowances
- Annual Investment Allowance (AIA)
- Claim up to £1 million on qualifying plant and machinery.
- 100% first-year allowances
- Claim the full amount for certain plants and machinery in the year of purchase.
- Writing down allowances
- If your plant and machinery don’t qualify for AIA or if you’ve already claimed the maximum amount, you can claim these.
Business expenses
Claiming all eligible business expenses is key to reducing your overall tax bill. Deductible business expenses include office supplies, employee wages, travel, and professional fees. These can be deducted from your taxable income, helping to reduce your company’s taxable profit. This can lead to significant tax savings if done right.
It’s a good idea to work with an accountant or tax expert to find all qualifying expenses that are strictly for business. You might discover a business expense deduction you weren’t aware of!
Learn more about business expenses here.
Pension contributions
Contributing to pension schemes on behalf of your employees is a tax-efficient strategy to lower your corporation tax bill. These contributions qualify as eligible business expenses, reducing your taxable profits.
Here is a great resource from Penfold that goes into pension contributions in more depth.
