As a business owner, managing your corporation tax obligations is essential for keeping your finances healthy. The good news? The UK government offers several reliefs that can reduce your tax burden and even fuel business growth. Knowing how to maximize these corporation tax reliefs can make a significant difference to your bottom line. In this guide, we’ll explore key relief options like R&D tax credits, capital allowances, and more to help you minimize your corporation tax liability while remaining compliant.
1. R&D Tax Credits: Fueling Innovation with Financial Incentives
Many businesses in the UK are missing out on valuable tax relief simply because they don’t realize that their activities qualify for Research and Development (R&D) tax credits. If your company is involved in developing new products, processes, or services, or improving existing ones, you could be eligible for this generous relief.
How It Works:
For SMEs, R&D tax credits can reduce your corporation tax liability or result in a cash repayment. You can claim up to 33% of qualifying R&D expenditure. For larger companies, the Research and Development Expenditure Credit (RDEC) allows you to claim a credit worth up to 13% of your qualifying R&D costs.
What Qualifies?
Qualifying activities can include creating prototypes, conducting trials, or even resolving technical uncertainties during product development. The key is that the work you undertake must advance scientific or technological knowledge.
Maximizing Your Claim:
To ensure you’re getting the full benefit of R&D tax credits, keep thorough records of your R&D activities, including the costs incurred. Work with an expert accountant who specializes in R&D claims to identify all qualifying expenses, such as staff wages, materials, and software.
2. Capital Allowances: Reducing Taxable Profits Through Investment
Capital allowances offer another way to reduce your corporation tax bill. They allow you to deduct the cost of certain capital investments—like equipment, machinery, and commercial vehicles—from your taxable profits.
Annual Investment Allowance (AIA):
The AIA lets you deduct up to £1 million of qualifying expenditure on plant and machinery per year. This is an immediate deduction, meaning you don’t have to spread the cost over several years, providing a valuable boost to your cash flow.
Super-Deduction:
Introduced as part of the government’s plan to stimulate post-pandemic economic recovery, the super-deduction allows companies to claim 130% of the cost of new plant and machinery as a tax deduction. This relief is available until March 2025 and offers a significant incentive for businesses to invest in their operations.
Maximizing Capital Allowances:
To make the most of capital allowances, plan your capital investments strategically. If possible, time your purchases to align with your accounting periods to maximize the relief in a single tax year. You should also review your current asset pool to see if any unclaimed allowances could be recovered.
3. Patent Box Relief: Reducing Tax on Profits from Innovation
The Patent Box scheme allows businesses to pay a lower rate of corporation tax—just 10%—on profits earned from patented inventions. If your company holds patents or exclusive licenses for patented technologies, this relief can provide substantial tax savings.
Qualifying for the Patent Box:
To qualify, your business must own or hold exclusive rights to a UK or European patent and actively make use of it. The profits must come directly from the exploitation of the patent, such as through sales, licensing, or royalties.
Maximizing Patent Box Relief:
Work with a tax expert to ensure your profits from patented products are clearly identified and reported. You’ll need accurate documentation of how these profits are separated from other business revenues.
4. Creative Sector Tax Reliefs: Supporting Innovation in Media and Technology
For companies in creative industries like film, television, animation, and video game development, the UK government offers targeted tax reliefs. These include Film Tax Relief (FTR), Animation Tax Relief (ATR), and Video Games Tax Relief (VGTR).
Eligibility and Benefits:
These reliefs allow you to claim back up to 25% of your qualifying production expenditure. Your company must pass a cultural test to qualify, demonstrating that your project contributes to British culture or the European Economic Area.
5. Loss Relief: Optimizing Tax Efficiency During Tough Times
If your company incurs a loss in a particular year, you can carry it forward or back to offset taxable profits from other years. This is known as loss relief, and it can be a valuable tool for businesses experiencing temporary financial difficulties.
Maximizing Loss Relief:
By carrying losses forward, you can reduce your tax liabilities in future profitable years. Conversely, carrying them back allows you to reclaim corporation tax paid in the previous year, providing immediate relief.
Maximizing corporation tax reliefs in the UK requires careful planning, good record-keeping, and a deep understanding of available reliefs. Whether you’re developing innovative products or investing in new equipment, these reliefs can offer significant savings.
To ensure you’re making the most of all available options, consult with a tax advisor who can guide you through the complexities of R&D tax credits, capital allowances, and other reliefs.
Need help with your corporation tax strategy?
Contact BJM Group today to explore how we can help you optimize your tax position and boost your business’s financial health.