Tax Saving Tips

Oct 10, 2023 | Tax

Tax

5 Ways Your Company Can Save Tax

We will explain 5 ways your Limited Company can save tax. We all know that dreaded feeling when the end of the year creeps up on us, and we are left wondering exactly where all our money is going. With interest rates on the rise, it’s easy to get caught up in what kind of tax relief is available for your Limited Company so we are going to let you in on our top 5 ways you could be saving tax! We understand the decisions you’re faced with as a limited Company Director whether it’s looking at how you structure your Limited Company or making sure you are claiming all eligible capital allowances available. Discovering ways to invest in the future of your Limited Company through research and development and employer pension contributions can be hard to navigate. Even if you’re looking to contribute to your chosen charity through donations can be confusing. We will discuss each of these topics and how implementing each of them can lead to your Limited Company becoming more efficient.

 

1. Structuring the Limited Companylimited company

A lot of small owner-managed businesses employ family members, more and more companies are now keeping it in the family when it comes to business, and if you’ve ever wondered why then let us tell you! With effective tax planning and company structuring you can efficiently save tax by setting up your spouse or partner, or child over 18 as a Shareholder and Director. You can even be set up as a basic paid employee within your Limited Company. Your Limited Company can expense Director Salaries and save up to 25% in corporation tax. Your family’s involvement can attract a lower rate of tax and enhance the personal allowances available you all. If they are a Director and Shareholder, you can pay each other a mixture of salary and dividends which could considerably minimise your corporation and personal tax bills. The current tax rate on dividends drawn and declared via the Limited Company is sitting at 8.75% for the lower tax threshold and 33.75% for higher rate taxpayers. Contact us now if you’d like us to structure your Limited Company the most lucrative and efficient way.

 

2. Claiming Capital Allowances

capital allowancesMany companies invest in assets when they start up their new business as without assets, many companies cannot operate. As they trade and the business grows, they feel the need to invest in more assets. The main assets that are purchased can vary between plant and machinery, office furniture, computer equipment, and company cars and vans. there are several fixed asset tax relief options for you. These are, AIA (annual investment allowance), 100% FYA (first year allowance), the super deduction and WDA (writing down allowances).

If your assets are eligible for AIA you can claim up to £1million on various types of fixed asset spend. AIA allows businesses to deduct up to £1million of qualifying capital expenditure from its taxable profit, thus reducing corporation tax.

With the 100% first year allowance you can claim the full amount for certain plant and machinery the year you purchased it. Writing down allowance is an option if your plant and machinery doesn’t qualify for AIA. The current rate is you can claim is 18%.

Super deduction and 50% special rate first year allowance – you can claim both against the cost of certain plant & machinery your business buys. Super deduction lets you deduct up to 125% of the cost of your profits before tax. Get in touch today for more information on annual allowances available to your limited company and fixed asset spend.

 

3. Research and Development

research and developmentA lot of companies reinvest their business revenues into researching new products and developing ideas and products if it is not available “off the shelf”. Time and expertise are spent on new methods of working, and creating plant or machinery that can be used to generate future revenues for the business. They will utilise existing staff or external consultants/subcontractors for R&D (Research & Development) purposes.

HMRC has made it easy for Limited Companies to claim relief on costs incurred for R&D purposes. this is an efficient way of not only saving on tax but also a way of looking towards the future of your business by making savvy investments. This incentive is all about rewarding your business for innovation. If you are spending money investing in new products or services or adding to your existing ones, you are eligible for R&D tax relief. The following sectors are prime examples of who should be looking to claim from this incentive – construction, manufacturing, tech & communication and scientific researchers. To qualify for this kind of relief you must prove how your project meets the needs of defined R&D criteria. Depending on the size of your company or whether your project is sub-contracted there are 2 types of R&D available.

    1. If you are a UK Limited Company and subject to corporation tax and employ less than 500 employees and if your turnover is under 100 million euros or a balance sheet under 86 million euros you are eligible for standard R&D tax relief.
    2. If you are a larger business that employs more than 500 people or you have a turnover of more than 100 million euros and more than 86 million In gross assets you could be eligible for RDEC (R&D expenditure credit). As of April 1st, 2023 the RDEC rates were risen to 20%.

 

4. Employer Pension Contributions

We know for so many people thinking about your pension and planning for the future can be the furthest thing from your mind when running a Limited Company, but did you know you can save for the future and be saving tax simultaneously? Pension contributions for Company Directors are an allowable business expense meaning they are tax deductible from your corporation tax bill.

It’s important to be aware of the pension annual allowance, this is the most you can pay into your pension each tax year and still receive tax relief, which is currently £60,000. You can also carry forward your annual allowance from the past 3 tax years, meaning if you pay less into your pension over a 3-year period your remaining allowance rolls over allowing you to carry that extra amount into the current tax year pension allowances. For example, it is the 5th April 2024 tax year and you haven’t paid into your pension for the past 3 years (2021, 2022 and 2023), you will have £180,000 of a pension allowance that your company can pay into your pension pot – £60,000 current year, and £40,000 x 3 years preceding – as long as you have the funds available in the business bank account. This gives you the chance to contribute a substantial amount of money while gaining tax relief.

 

5. Donating to Charities

Making charitable donations is not only something that can leave you feeling accomplished but can also minimise your taxes. Donating to charity is another way your Limited Company can save on that all important tax bill. When donating to a charity or a community amateur sports club you are able to deduct the value of donations from your business profit. There are certain types of payments you cannot deduct, if the charity plan on repaying the loan or if the payment is a distribution of company profits or dividends these cannot be included. If you receive a benefit from the charity, you’re donating to such as tickets to an event it must be under a certain value for you to claim corporation tax.

 

So, there you have it our top 5 ways your business could be saving on tax, how many did you already know about or utilise? Sign up to our monthly newsletter to keep in the loop for our latest hints and tips and remember to follow us on social media.

Head over to Our Services page to find out more…. or contact us directly by filling out the form below.

**The information provided in this blog is for informational purposes only and should not be considered as financial advice**

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