When it comes to tax planning, UK business and organisation should do intelligent planning for paying the correct amount of tax that they owe with proper rules to follow. With these simple tips, UK corporation tax can be reduced and businesses can save an amount on the tax bill.
Claim Every Expense
UK organization can claim every expense which is made for business use. Even a small amount matters. To reduce corporation, It is advisable to record every expense your client make for their business and thus lead to lesser stress. Small expenses will add up later to big amount and can be pay off in the corporation tax like £3 bus tickets or a £2 pad of paper etc. It can be seen as a hassle but it is important to claim every expense.
Claim Travel Mileage
If your client’s company has few employees, you can advise them to run their own vehicles for business travel and later can claim fixed mileage expenses from the company to reduce your client corporation tax. Alternatively, carpool can be a fantastic option to get some tax relief to the company by means of capital allowances but they may attract other forms of BIK tax for both employee and company.
Where the employees or directors use their own personal vehicle for business use, they can claim up to 10,000 miles per year at a fixed rate of 45p per mile. Further to this limit, the fixed rates drop to 25p per mile.
Client shouldn’t claim day-to-day commuting to your workplace and only mileage should be claimed for business purposes.
Claim R&D Tax Relief
We hope you are not missing the tax reliefs for the innovations your clients are making.
You can reduce your client corporation tax if they are developing new or improved processes, products or softwares by around £25,000 for every £100,000 spent on innovating. Research and development allowance is available for tax savings where you have paid for research facilities or equipment.
Where the company is eligible to claim for R&D tax credits, some of the normal tax-deductible business expenses such as salaries, materials, software, etc. not only reduce the corporation tax bill, but a portion of it can be repaid to the company in the form of tax credits. Claim R & D tax bill is strictly dependent on two factors
- the size of the company
- company is making a profit or loss.
Work From Home Allowances
To reduce corporate tax, HMRC allows UK businesses to claim some cost as a tax-deductible expense for using personal space.
There are two options for work from home allowances:
- Claim a flat rate of £6 per week (an allowance of £312 per year for the 2020/21 tax year & £208 for the previous year).
- Rent a room in your clients’ personal house to their limited company.
The income your clients get as rent from the limited company must be declared on your client’s personal tax returns.
You can also read: How to Fill In Your Corporate Tax Returns
Business directors receive payments in the form of compensation & dividends. To lower corporate tax, Receiving a paycheck can be an efficient way. HMRC recognizes compensation as a tax-deductible company cost for staff. Also, dividends are not tax-deductible and should only be paid from the income of the company.
Company Mobile Phone
In the current scenario, working from home is now the new normal. To maintain the connectivity among employees, connection virtually shot up to priority.
With the current scenario of working from home, staying connected virtually shot up to the priority. It is important to give corporate cell phones to employees for business calls to consumer and clients. Cost of the mobile devices your clients provide to their employees is an allowable tax-deductible expense that can help to reduce corporation tax. There are some conditions that need to be fulfilled for claiming without making the availability of a cell phone as Benefit in Kind (BIK).
- Firstly, the telephone must be in possession of the organization and should not belong to the worker. This means that they must return to the company when they leave the organization.
- Each employee can be equipped with only one working phone. No matter the employee is the director of the firm.
- Phone cannot be exchanged for a higher salary.
- Finally, any contract with an employee for the mobile device must be taken under the company’s name, with the company paying the bill.
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