If you are struggling to minimize your corporation tax liability, you’re at the right place. In this blog post, we’re going to crack corporation tax relief and allowances. To achieve your target, you need to understand the ways to handle annual investment allowance and other types of capital allowances. We’ll also discuss allowable expenses.
To cut down your corporation tax liability, you can contact us anytime!
Capital Allowances along with Annual Investment Allowance:
In the process of calculating your taxable profit, business expenses are normally subtracted from your income. You are allowed to claim the capital allowance, but you cannot do purchases of assets.
You can claim a capital allowance for the assets you purchase to run your business that includes equipment, machinery, and business vehicles. In a few special cases, you can claim capital allowance on the business premises as per capital expenditures like insulation of a building, etc.
The UK government has launched Structures and Buildings Allowance (SBA) for new and non-residential buildings and structures on 29 October 2018. The SBA allows 3% annual deductions from profit in 2020/2021 based on the original construction cost. Different types of expenses are liable for different capital allowances.
In the first year, you can request a full capital allowance, if your total capital expenditure is below the annual investment allowance (AIA). The AIA threshold is up to £1 million after 1 January 2019 for two years.
The cost you spent on your capital that is above annual investment allowance (AIA), you can claim normal writing down allowance (Capital Allowance) up to 18% per year for the amount of most plant and machinery and 6% when special rates apply. This allowance is reduced to 6% on the special rate pool of plant and machinery for the businesses that are liable to pay corporation tax and income tax.
Capital Allowances for Company Cars:
For companies’ cars, a special capital allowance is applicable depending on the emission standard of a car. This is only for specific cases. And capital allowance for short-term assets lasts not more than 4 years. Cars are not eligible for annual investment allowance (AIA), yet enhanced capital allowances (ECAs) are there for eco-friendly technology that allows you to claim 100% in the first year.
You can avail Capital Allowances on these Assets:
You can qualify for capital allowance on these assets. They include:
- Research and development
- Restoring a business property in deprived areas.
HMRC Capital Allowances Toolkits:
Toolkits by HMRC are helpful for businesses, tax agents, and advisors to tackle errors occurring while identifying capital expenditures.
- HMRC capital versus revenue expenditure (PDF)
- Capital allowances for plant and machinery by HMRC (PDF)
Allowable expenses are those expenses that are necessary for your business and they are non-taxable. They are a part of the running cost of your business. These expenses do not include the money you take from your business for personal expenses.
These expenses include office stationery and phone bills, travel cost, staff cost, clothing cost, things you buy for selling, financial cost, business premises cost, advertising and training cost. If you have utilized a tax-free trading allowance of £1000, you are not eligible for these expenses.
Corporation Tax Relief:
You can reduce your tax liability through this relief:
1. Research & Development Tax Relief :
If you qualify for research and development costs, you are eligible for R & D tax relief. For this tax relief, you don’t need to be working on advanced technology.
This relief provides you the opportunity to subtract this cost from your income, plus you can claim an extra up to 130% as corporation tax relief from your business profit.
The companies who are at a loss can claim corporation tax relief to control their losses. These rules may be different for large organizations.
2. Patent Box scheme:
In this scheme, companies have patents owned or have an exclusive commercial license. The profit must be acquired from patented inventions and innovations or the patent rights which are sold. Those businesses can get reduced rates if they apply for a lower rate of corporation tax which is 10%.
3. Corporation Tax Relief for Loss:
There are multiple corporation tax reliefs if your business suffers a loss. These tax reliefs are given against your previous income or profit. It may be carried forward against your future income.
Group reliefs are also provided to a company to offset among groups of other companies.
You can download the HMRC company losses toolkit (PDF) to avoid common errors relating to the company’s losses after doing the company’s tax returns.
We are a team of certified chartered accountants in London. Our mission is to help individuals, small businesses, and landowners to achieve their financial goals. So, don’t hesitate to get in touch with our team for queries and support. Let’s discuss the ways to reduce and save taxes!