Common and effective corporation tax reliefs
If you run a private limited company (LTD or Limited), the main operational tax burden you face is corporation tax (CT). CT is levied on your company's taxable profits as well as certain gains arising from asset sales where the value has increased. The current CT rate in March 2023 is 19% but is set to increase to 25% from 1 April 2023.
What is corporate tax relief?
There are several ways you can reduce your corporation tax bill, for example by claiming allowable expenses and various tax reliefs. These reliefs are put in place to encourage business investment and to help keep the national economy in good shape by avoiding business collapse. Reliefs include allowances for fixed capital investments, patent reliefs and measures to support creative industries. Let us take a closer look at how you can improve your corporate tax efficiency using some of these means.
Capital Allowances (tax depreciation)
You can claim capital allowances on qualifying assets bought for your business. Some examples of qualifying assets include equipment, machinery and vehicles like vans, lorries, or company cars. These costs are distinct from business expenses like day-to-day running costs, interest payments or tradable items. However, you may also be able to claim separately for these.
Profit from patents
If you make a profit from patented inventions, you can claim a reduced corporation tax rate of 10%. To benefit from the 'Patent Box' scheme, you must fulfil the following conditions:
- Be liable for corporation tax.
- Profit from using patented inventions.
- Own or have exclusive licence rights to the patent(s).
- Have undertaken qualifying development on the patent(s).
Production of creative media
If your company produces media such as video games, TV productions, or films, you may qualify for creative industry tax relief(s). These allow you to raise the value of your allowable expenditure offset, thus lessening your tax liability. To qualify, your output must be certified as British and must pass a 'cultural test' or international co-production agreement that assures its status as creative material.
Losses that your company makes
You may also claim corporation tax relief on your annual losses. If you make a loss from trading, you can offset this loss against profits of the same accounting year. You may also carry losses back or forward to another accounting period.
Advice on corporation tax relief and tax planning
Arnold Hill & Co LLP can help the tax efficiency of your business in several ways. Corporation tax relief is just one of these and is a great place to start. For a free consultation, please contact us today.
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