All limited companies pay Corporation Tax on their profits, which include trading revenues, chargeable gains and investment income. The Corporation Tax bill is generally due to be paid nine months and a day after the company year ends.
Although you have to pay Corporation Tax on the firm’s profits, you can legitimately reduce the amount covered by claiming all eligible expenses, allowances and tax relief that is available. Before making any claims, check with your accounting service that they are allowed, as a penalty could be charged.
Claiming expenses
Most expenditure incurred during the day-to-day running of a company can be claimed for and deducted from gross profits. There are rules regarding the type of expenses that are permissible, as not all can be used to directly reduce profits.
You can claim for the cost of stationery, phones, travelling, and staff uniforms, in addition to other items that are legitimate business expenses. Entertaining guests is not an allowable expenditure, despite a common belief that it is. Meanwhile, uniforms must feature the company logo to be allowable as an expense. As such, any clothes worn as part of a uniform that could be worn elsewhere, like a plain white shirt or a suit, are not allowable.
Capital allowances
Capital allowances are complex, with various rules applying to different expenditure. Although most business expenses can be deducted from profits to reduce the net amount, some have to be claimed as capital allowances, like company cars. Meanwhile, most plant and machinery can be claimed for with the Annual Investment Allowance, which is worth up to £500,000 in 2015. Once you have claimed the full amount, any expenditure that hasn’t been claimed for can be covered by capital allowances.
Research and Development Relief
Expenditure incurred for research and development by a company that is liable for Corporation Tax can claim R&D relief. The rates claimed differ according to whether the firm qualifies as a small and medium-sized enterprise (SME) or a large company.
Writing Down Allowance
If an item you have purchased for the business doesn’t qualify for Annual Investment Allowance or you have used up the annual amount, the asset will be placed into a pool so that you can claim an allowance that is deducted from annual gross profits. There are three pools: special rate, single asset, and the main pool. They all have varying rates that can be claimed.
To learn more about tax relief, allowances and the expenses that can be claimed to reduce the amount of Corporation Tax that you have to pay, contact us to discuss it further.