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Tips to stay tax efficient

Jul 11, 2022

What can you do to ensure you minimise your corporation tax bill, stay tax efficient and keep more of your company’s hard-earned profits?

Business Structure

When you’re starting a business, one of the first questions to consider is which type of legal entity to use. Will you set up as a sole trader, a limited company, a partnership, or something else altogether?

There’s no right or wrong answer to this. The best way to structure your business will depend on the type of business you run, and it might change as you grow over time. Check out our article on choosing the right business structure for more information.

If you’re looking to reduce costs and improve efficiency, restructuring your business may be a viable option. Restructuring your business doesn’t have to be a response to financial difficulties, there are many benefits to a more efficient financial and operational structure. If you’re looking to restructure your business get in touch, we’ll help guide you through the process, minimising impact where possible, and ensuring that any restructuring is in the best interest of your firm.

Tax reliefs

Corporation tax bills can be reduced through tax planning and identifying reliefs to which your company might be entitled.

R&D

Research and development (R&D) relief is available for both smaller and larger companies that work in innovative projects within science or technology. Smaller companies with less than 500 staff, a balance sheet of less than €86 million and turnover of less than €100m may be eligible for SME R&D relief. This enables them to subtract 130% of their qualifying costs from their annual profits on top of a basic 100% deduction (230% in total).

Larger companies that carry out R&D projects or subcontracting SMEs may qualify for the R&D expenditure credit.

Other tax reliefs

Companies that generate and hold income from a patent can reduce their corporation tax bill from 19% to 10% by electing into the patent box scheme.

Some film, TV and theatrical productions, as well as certain museum and gallery exhibitions, can be eligible for creative industry tax relief.

Other tax reliefs are available to reduce your corporation tax bill. Get in touch with one of our experts to find out more.

Savings

Individual Savings Accounts allow you to save up to £20,000 (2020/21) in total across all of your ISAs, and the income and gains on the investment are tax free.

There are a variety of ISAs to choose from, including cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs.

  • Lifetime ISAs are only available for adults under the age of 40. You can contribute up to £4,000 (as part of the overall annual allowance of £20,000 for 2020/21) per annum and receive a 25% state bonus.
  • The Help to Save ISA scheme is only available to low income households and is intended to facilitate savings of up to £4,000 a year.
  • Junior ISAs can be opened and paid into on behalf of children under 18.

We will advise you on the best place to put your money to enable it to grow, whether your goal is saving to buy a property, to pay school fees or simply to build a rainy day fund.

Extracting profits

Once you’ve set up an incorporated business and become a director, you must be smart about how you extract profit to avoid paying more tax than you need to. Recent changes to how dividends are taxed gave rise to another tax-efficient option when it comes to extracting profits.

There are three main routes for a director to extract profits from their own limited company – salary, dividends and pension contributions. Usually, combining these three methods is the most tax-efficient approach to minimise your tax bill.

With corporation tax applying on any of your company’s taxable profits from its accounting period, the money you take out of the profits to pay yourself can potentially reduce your company’s corporation tax liability.

 

If you’re looking for help or advice in keeping your business both compliant and tax efficient, get in touch to arrange an obligation-free meeting.

 

Related Services:

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