Corporation tax is an inevitable and painful part of business, but there are a number of legitimate ways to reduce corporation tax to keep your liability to a minimum. This is through making full use of the annual investment allowance, other capital allowances and allowable expenses.
How to reduce corporation tax
One effective method to reduce corporation tax is via a SSAS – small self-administered scheme – pension. Here contributions are counted as a business expense and therefore not liable to tax. An advantage of this is the money is still there – in the pension. This is unlike other tax-free business expenses which, once they have gone, have gone for good.
Making use of the annual investment allowance, which varies regularly, is also a way of mitigating the amount you pay. Allowable expenses need also to be taken into consideration, as they can be offset against the overall tax bill. In general, most business expenses can be set against profits, provided the expense is necessary and is wholly and exclusively for business purposes.
Corporation tax relief is also available for certain research and development projects.