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11 (Legal) Ways to Reduce Your Corporation Tax Bill in 2024

On 1st April 2023, corporation tax increased from 19% to 25% for some businesses. However, the corporate tax landscape is peppered with opportunities to minimise your tax liabilities, which are worth looking into. We can appreciate that navigating the UK's corporate tax regulations can be complex and daunting for any business, so we’ve written this blog post to give you a quick overview of how to lower your tax burden legitimately: It summarises potential strategies and gives you access to more, in-depth learning sources. 

Armed with the ideas from this guide, you'll be well-equipped to make informed, strategic decisions about reducing your corporate tax bill legally.

Reduce your corporation tax bill tip #1: Claim all eligible business expenses

Review your business expenses each year and claim them all as deductible costs. For example, staff party expenses, insurance, travel, and clothing can all be claimed to reduce your tax bill. Consider working with an accountant or tax expert to do this, as they will be able to help you uncover all qualifying costs that have been exclusively spent on business activity, as you might be unaware about some.

This is a great source of information if you want to learn more. 

Reduce your corporation tax bill tip #2: Claim Patent Box tax relief

If you have created a patented product, process, or service, then you can reduce your tax bill through the Patent Box relief tax incentive. This incentive applies a lower rate of Corporation Tax (currently 10% for 2023/24) to any income generated from your patented invention.

To benefit from this incentive, you must first formally opt-in to the scheme by informing HMRC that you intend to use the Patent Box–two years after the end of the accounting period when the profits were generated–either within your tax return or by submitting a written notification.

You can read more about the Patent Box, here and find out if you might be eligible for this incentive, here. 

Reduce your corporation tax bill tip #3: Maximise your Capital Allowances

Maximising capital allowances is a common way to reduce a tax bill, as companies can claim deductions for qualifying business assets (including things like building fixtures and specific building improvements). Multiple types of Capital Allowances are available, requiring careful planning and strategic thinking. For example, you could deduct the total value of an asset (up to £1 million in value) from your profits before tax, or you could deduct a percentage of the value of an asset from your profits each year. Plus, how you purchase qualifying assets could affect how much you can deduct, too. For example, assets bought outright or leased can affect your eligibility for capital allowances.

Capital Allowances are notoriously complex, so it’s best to seek professional advice before you take action, but this is a great source of information if you want to learn more.  

Reduce your corporation tax bill tip #4: Make charitable donations 

Not only does donating to charity make you look and feel good, it can also reduce your tax bill, as long as:

• The charity you choose can prove it’s been created for charitable purposes and public benefit. A few examples of what constitutes a charitable purpose, include the prevention of poverty, or the advancement of education or amateur sport.
• The charity is a UK-registered one 
• Your donations take the form of cash, shares, equipment, your products, property or land, employee secondments or sponsorships.

This is a good place to discover more about donating to charity and reducing your tax bill. 

Reduce your corporation tax bill tip #5: Make pension contributions 

Making contributions to pension schemes on behalf of your employees can be a tax-efficient way to reduce your corporation tax bill. These contributions can be treated as an eligible business expense and deducted from your profits before tax.

You can find out more here. 

Reduce your corporation tax bill tip #6: Change your company structure

You could potentially reduce your tax bill by restructuring your business. If you’re not already a limited company, consider changing to one as you will pay corporation tax on your profits, rather than paying income tax rates as a sole trader or partnership, which are usually higher. You might also want to consider creating a holding company, as non-taxable profits can be moved to the holding company as dividends, reducing your tax bill. 

This is an excellent general source of information if you want more detail. 

Reduce your corporation tax bill tip #7: Invest under the Enterprise Investment Scheme

You could invest (up to £1,000,000 per year) in young companies, under the Enterprise Investment Scheme (EIS) to reduce your tax bill. Through this scheme, you’ll be able to defer your taxes for up to three years after you’ve made the investment into an EIS business and receive up to 30% of the amount you invested, as a reduction in your Income Tax bill.

Plus, any profits you make from selling your EIS shares will be free from capital gains tax if you’ve had them for over three years. 

You can find out more here. 

Reduce your corporation tax bill tip #8: Minimise cross-border taxes

You'll probably have to pay multiple taxes if you operate in two or more countries. But luckily, the UK has an extensive network of tax agreements with other countries to prevent you from paying tax twice or more. The agreements, known as double taxation agreements, double tax treaties or double tax conventions, mean only one country can tax your income. Sometimes, the agreements are set up to allow a credit for the foreign tax you’re paying when you calculate your UK tax liability on the foreign income.

You can read this for more information on double taxation agreements.

Reduce your corporation tax bill tip #9: Keep costs and revenue separate 

Itemising expenses and invoicing them separately means you can make sure that the VAT paid on those expenses is documented, making it easier to reclaim, and it also makes it easier to identify and evidence qualifying, deductible business expenses. Plus, if you keep your overheads separate from your revenue, you will ensure that your expenses aren’t included in your tax bill, meaning your taxable profit margin will be significantly reduced. 

This is a good guide to help you with this process. 

Reduce your corporation tax bill tip #10: Offset losses against future profits 

If you haven’t made a profit in the year you incurred a loss, you can carry it forward, and offset it against future profits. When you make a profit, the carried-forward loss can then be used to reduce your taxable profits. It’s worth noting that the amount of profit that can be offset by carried-forward losses, is limited to 50%, for profits exceeding £5 million.

Read this to help you understand this often complex process. 

Reduce your corporation tax bill tip #11: Claim R&D tax credits 

You can claim up to 27% of R&D tax credit relief on what you spend on any research and development (R&D) projects (that you’ve either completed or are working on) which aim to advance science or technology or seek to overcome a scientific or technological uncertainty.

Any UK company–regardless of size, industry or profitability–could be eligible for R&D tax relief, as long as their expenses and R&D activities qualify for the incentive. 

For more information, contact the specialists behind our R&D tax credit portal Tax Cloud, to see if you qualify for a tax reduction relating to R&D.

Conclusion 

With the rising cost of living, a recession and a turbulent economy to deal with, it’s essential that you save money wherever you can. 

But shaving the pounds off your corporation tax bill can be a complicated, technical process. By exploring options like R&D tax credits, capitalising on capital allowances, or leveraging approved investment schemes, businesses can benefit from lasting financial benefits.

Seeking expert guidance is essential to navigate these strategies effectively, to not only make sure you’re saving the maximum amount but to also make sure they align with your legal tax obligations.

Don’t forget, the R&D tax team at Tax Cloud will always be on hand to talk you through the R&D tax credit scheme.