We can see many businesses being obsessed with a term called ‘reducing taxes’ which might not be the right statement. One cannot reduce the tax that they are liable to pay to the government which would amount to crime. Rather, it should be referred to as ‘tax savings’ by considering the allowable business expenses and elaborate tax saving schemes offered by the government.

To get a complete hold of the tax saving strategies, companies and their accountants must have immense knowledge and expertise about the taxation rules and tax reliefs provided by government. The final objective of tax savings is to pay only the tax amount that a company is liable to pay without missing out on tax saving schemes.

Corporation tax savings can be done with the help of an accountant. If a small business does not have an accountant, then they can find an accountant with relevant experience to save maximum in taxes.

Some of the best practices that can be followed for saving taxes are discussed below.

Claiming all the business expenses

Claiming all the business expenses to save taxes may sound like an easy, one time task. But it’s more of a practice to be adapted than a task. This involves tracking all the expenses made for the whole year without missing any of them. Then the expenses are classified as business with the advice of the accountant as per HMRC regulations. This information of business expenses can be claimed for exemption in Corporation tax.

It is also important to not mix up business and personal expenses to avoid confusion during filing. HMRC states that any expense which was spent ‘wholly and exclusively’ for the absolute necessity of the business can be claimed as business expense.

Offsetting business spending against AIA

AIA or Annual Investment Allowance is a tax relief provided to businesses for the purchase of business equipment, plant machinery etc. Business expenses for buying any business related machinery or equipment can be claimed in the Annual Investment Allowance for businesses. 

These expenses are reduced from the profits to reduce the taxable income and eventually save taxes.  Businesses can make smart use of this allowance in their yearly budget to save taxes on purchases. Businesses have Annual Investment Allowance of £1 million that can be claimed from 2019.

Research and Development Tax reliefs

Companies involved with innovative research and development projects can save taxes by claiming the Research and Development tax relief scheme.  To access the tax relief, companies have to be qualified by HMRC regulations.

HMRC specified that any company that works towards advancement in science and technology are qualified for the tax relief.

Even companies with unsuccessful research projects can claim this tax relief as per HMRC. UK government has provided this tax relief in order to promote advancements in Science and technology.

Also Read - Company Corporation Tax Return: Required for filing, Due Date, Penalties

Patent tax relief

Companies can claim this patent tax relief to save in corporation taxes if they are earning profits through patented technologies or inventions. This scheme is called as Patent Box. To claim patent tax relief, the company should have the exclusive license on the patent.

HMRC will assess the relief application and analyze the company’s qualification to avail the tax relief.

Other means

Other means through which a company can save taxes are

• Introduction of salary sacrifice schemes that allows the companies to give tax free benefits such as childcare vouchers, gifts like phones or bikes
• Payments into pension plans by following the tax guidelines and enroll for tax relief
• Through professional insurance

Paying taxes in advance

Paying taxes to the HMRC in advance would fetch an interest on the tax amount that is paid. Effective planning and execution of the accounting processes in the company enables to pay taxes in advance and earn an interest which is another way to save tax.

A qualified accountant might give more insight into other legitimate ways of tax savings through various accounting strategies and knowledge. So choosing the right accountant and working with them effectively will keep the businesses ahead of the tax game.

If a business does not have an accountant, then they can find an Local accountant to help in tax filing, tax savings and a whole suite of tax related matters.