How to reduce your corporation tax bill

Amazon has massively cut its corporation tax bill in the UK this year, in turn drumming up a mixture of anger and curiosity amongst business owner in the country. The need to reduce corporation tax is a consideration for every business owner, and Amazon are no exception.

The retail giant’s UK division paid only £1.7 million in tax this year, a significant reduction in comparison to the £7.4 million tax bill they footed last year. This is despite a pre-tax profits jump of £72.3 million from £24.3 million.

It appears the company was able to defer tax payments by paying staff in share-based payments – worth an average of £1,000 each per year.

Corporation tax is based on profits, not revenues, and Amazon’s profits have remained low. This is largely down to the fact retail is a highly competitive, low-margin business and Amazon continue to re-invest heavily.

The question for SME’s is: how can they ensure their own tax planning is as lean as possible, as is the case with Amazon?

How to reduce your tax bill

One way of doing it is to claim research and development tax credits from the Government.

The average R&D claim for SMEs, launched by the Government in 2000 to reward innovative UK companies, is now £61,514.

However, due to low take-up, SME’s are still owed over £84 billion in unclaimed tax relief – that’s roughly 41 times Amazon’s total UK turnover this year.

R&D can be paid in the form of a cash payment and/or a lower corporation tax bill.

For all those whose minds suddenly jump to white lab coats at the very thought of R&D -this tax credits scheme isn’t confined to a laboratory, it’s purposefully broad; everything from a new piece of software to a boundary-pushing restaurant dish is covered.

Once you’ve received a nice financial boost, make sure you reinvest in more innovation, creating a never-ending loop of reward for your business.

Patent tax relief

There is also a Patent Box tax relief which is available for innovative companies and comes in the form of tax relief on profits derived from patented inventions and, while the process is a tad on the complicated side, it is worth looking into.

Employment allowance and business rates

Employers who currently pay employers’ Class 1 National Insurance could save up to £3,000 a year from their National Insurance Bill.

Claiming employment allowance does have some quirks. For example, if individuals own a group of companies, employment allowance can only be claimed by one business, or spread between the group, up to the maximum value of £3,000.

Business rates relief is available to small businesses who own a single property with a rateable value of up to £15,000 and in some cases, can reduce business rates payments to nil.

The scope of business rates reliefs is quite broad and there are different schemes for individual types of businesses, for example, pubs.

As a business grows, it may be wiser to take on the services of an accountant or third party adviser who would be better placed to identify and apply for any types of tax relief which could have been missed before.

Overall, for businesses who want to achieve a more lean tax plan, and ultimately pay less corporation tax bill, there are a number of routes which could be open depending on the business in question.

Looking for expert tax advisory? Get in touch with our team and see how we can help your business.