How to Save My Company Taxes UK: Proven Strategies

If your company is not based in the UK but operates an office or branch here, it only pays corporation tax on the profits arising from its UK activities.

Apart from this, trade associations, housing associations, societies, and member clubs also pay the government for it. The submission and completion of returns totally depend on the company's director.

To help you with saving company tax UK, we have put together a few proven strategies. But first, let’s learn a bit more about UK company taxes.

What is the Rate of the UK Corporation Tax?

The current UK corporation tax rate is 25% for all limited companies. This main rate applies to companies with profits in excess of £250,000. For UK resident companies with augmented profits below £50,000, a lower rate of 19% is generally applicable.

Prior to April 2023, the main UK corporation tax rate was 19%.

Small Profits Rate:

• Applies to profits between £0 and £50,000
• Tax rate: 19% (for the years 2023-24 and 2024-25)

Marginal Rate:

• Applies to profits between £50,001 and £250,000
• Tax rate: 26.5% (for the years 2023-24 and 2024-25)

Main Rate:

• Applies to profits over £250,000
• Tax rate: 25% (for the years 2023-24 and 2024-25)

Check how much relief you can claim:

You can calculate marginal relief for corporation tax to check how much marginal relief you may be able to claim.

When Do I Need to Submit My UK Corporation Tax Return?

• Accounting Period: Typically, a corporation tax period aligns with a company’s financial year. However, it can't exceed 12 months. If your financial year is longer, you must file two returns.

• Filing Deadline: The UK corporation tax return must be filed within 12 months of the end of the accounting period.

• Payment Deadline: Corporation tax must be paid within nine months and one day after the end of the accounting period.

Strategies to Save on UK Company Taxes

Following are the different ways to save UK company taxes.

Claiming Allowable Business Expenses:

Allowable business expenses are costs that are essential and directly related to running your business. These expenses can be deducted from your taxable income, reducing your overall income tax liability.

Capital Allowances:

Capital allowances are provided to give a business tax relief for capital expenditure on qualifying assets.

Claiming capital allowances effectively reduces the amount of taxable profit, thereby lowering the corporation tax or income tax liability. For example, if a company’s taxable profit before allowances is £200,000 and it claims £50,000 in capital allowances, its taxable profit reduces to £150,000, resulting in a lower tax bill.

From April 2023 to the end of March 2026, businesses can claim 100% capital allowances on eligible plant and machinery investments. Full expensing allows enterprises to write off their investment costs in one go. Full expensing reduces a company's taxes by up to 25p for every pound it invests.

Research and Development (R&D) Tax Credits:

R&D tax credits are a government incentive designed to encourage companies to invest in innovation and development. They are available to companies of all sizes and can provide significant financial support by reducing a company’s tax liability or providing a cash refund for eligible research and development activities.

Patent Box Regime:

A Patent Box Tax Regime allows for a lower tax rate on revenue from licensing or transferring intellectual property rights such as trademarks, copyrights, patents, and know-how. The concept of patent boxes, which serve as a tax incentive for businesses to exploit their patented intellectual property, is quite prevalent. Many governments have adopted the system to encourage intangible research and development.

Any company liable for the UK corporation tax with income from patents and other designated intellectual property may be eligible for a 10% effective corporation tax rate on such income. The regime is designed to apply to worldwide income derived from the utilisation of inventions protected by a qualifying patent.

Utilising Losses:

Loss relief in the UK allows businesses to offset their losses against taxable income, reducing their overall tax liability.

• Carry Back Loss Relief: Companies can carry back trading losses to the preceding 12 months, setting the loss against profits from the same trade.

• Carry Forward Loss Relief: Trading losses are carried forward and automatically set against the first available trading profits from the same trade in subsequent accounting periods.

Losses must be used in the earliest period possible and cannot be reserved for future years when profits may be higher.

Let’s say XYZ Ltd has a trading loss of £100,000 in the 2023 financial year and profits of £50,000 in 2022, then:

XYZ Ltd can carry back the £100,000 loss to offset the £50,000 profits from 2022, resulting in a £50,000 loss to carry forward.

Bottomline

Implementing effective tax-saving strategies can help you maximise your company's profits in the UK. Allowable expenses, capital allowances, R&D tax credits, and other reliefs can greatly reduce your tax burden. Ready to optimise your tax strategy? Join Taxd for expert guidance on how to save on UK corporation taxes.

FAQs

1. Do sole traders pay corporation tax UK?

No, sole traders do not have to pay Corporation Tax.

2. Can I use previous losses to reduce my tax liability?

Yes, businesses can carry forward or carry back trading losses to offset future or past profits. Group relief also allows losses to be transferred between companies in the same group.

3. Can a company claim Patent Box relief retroactively?

Patent Box relief can only be claimed for the current and future accounting periods. However, companies can amend previous tax returns within certain time limits if they discover they are eligible for Patent Box relief for those periods.

4. What is the Annual Investment Allowance (AIA)?

The Annual Investment Allowance (AIA) allows businesses to claim a full deduction for the cost of qualifying plant and machinery up to a limit of £1 million in the year of purchase. This provides immediate tax relief on significant capital expenditures.