The corporation tax rate is currently 19%.
Self-assessment
A company has to calculate its own corporation tax liability and pay this by the due date, which is usually nine months and one day after the end of its accounting period.
A company tax return has to be filed with HMRC within twelve months of the company’s year-end. Interest is charged on late payment of corporation tax, and there are also penalties for late filing of a company tax return.
Ideas to reduce your corporation tax liability
1. Expenses
Expenditure incurred before the company year-end might reduce the current year’s tax liability instead of next year’s. Bringing forward expenditure by even a few weeks on, for example, building repairs, advertising, sales and marketing campaigns, and any other item deductible from profits can accelerate the tax relief by twelve months.
2. Plant and equipment
Depreciation is an accounting adjustment which is not allowed for tax purposes, but capital allowances are available. The maximum amount of the annual investment allowance (AIA) on qualifying plant and machinery (not cars) is £1 million (which will reduce back to £200,000 from 1st January 2021). If AIA is not available, then writing down allowances of 18% or 6% may be used instead.
Businesses that invest in qualifying energy-saving or environmentally beneficial equipment is entitled to claim a 100% first year allowance. This does cover some cars. Where commercially and financially appropriate, capital expenditure should be brought forward to make the earliest use of the available allowances.
3. Hire purchase and lease purchase
Hire purchase and lease purchase may provide a useful method of financing the purchase of an asset. Plant and equipment acquired on hire purchase should qualify for capital allowances on the full purchase price, even if the company has paid only the deposit.
4. Provisions
Specific provisions against bad debts or stock are allowable for tax purposes, but general provisions are not.
5. Bonuses to directors and staff
A proper provision may be made in the annual accounts for specific bonuses paid up to nine months after the year-end. Take care to ensure that these are charged to PAYE and NI as appropriate.
6. Pension contributions
Contributions to registered pension schemes are normally allowable for tax in the year of payment, though there are rules which cover spreading large increases in payments.
Capital gains
Capital gains are taxed at the effective rate of corporation tax (19%). Gains are calculated after deducting from the sale proceeds the market value at March 1982 (or cost of acquisition, if later), costs incurred in improving the asset, an indexation allowance (to account for inflation up to December 2017), and certain disposal costs.
There are reliefs that may be available to reduce the chargeable gain or defer it.
Last updated: 17.11.2020
Whilst the information in this document is correct; you should always obtain individual advice from a qualified accountant.