Tax Talk: Corporate tax – explore all avenues

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In our current financial climate all savings are welcome. David Emery advises on some of things you can do to lower your corporate tax bill.

As a corporate tax advisor there are a few questions my clients often ask me. We live in a world where cash is king and the current crisis has made this ever more true. Most questions revolve around a single theme: how can I reduce my current corporate tax liability?

When it comes to reducing your immediate corporate tax liability burden, there are two main routes:

  • make sure you consider and, if appropriate, opt for all possible beneficial corporate tax choices
  •  incur expenditure in a commercial and tax efficient way
Here are some of the most common corporate tax elections:

Capital allowances

Rishi Sunak recently announced a large increase in the relief a company can receive against expenditure incurred on certain qualifying capital assets. Before the recent Budget, plant and machinery and integral features (such as air conditioning and electrical wiring) would have qualified for 18% and 6% relief per annum respectively. These assets will now qualify for first year allowance super deductions of 130% and 50% respectively.

So it may now be more important than ever to do a thorough analysis of your investment expenditure to make certain you’ve claimed all possible capital allowances.

Loss relief

Although this is more about recovering tax previously paid, not reducing your current corporate tax liability, the Chancellor also announced an improvement to the current loss carry back provisions for accounting periods ending between 1 April 2020 and 31 March 2022. You will be able to carry back losses incurred in this time window to the previous three years (rather than the usual 12 months) up to a maximum of £2million (subject to certain corporate group limitations).

But with significant corporate tax rises on the horizon, it may be more valuable to hold on to these losses to use against profits which may be taxed at the proposed corporation tax rate of 25% from 1 April 2023. 

R&D tax relief

As my colleague Shona Barker wrote last month in her Tax Talk article ‘R&D claims: seriously worth it’, R&D tax relief claims can be highly valuable. For example, they could be worth up to £33.35 of free money for every £100 of qualifying expenditure for small and medium-sized companies. For more detail, see Shona’s article 

Pension contributions

Pension contributions are ordinarily deductible in the period in which they are paid. Increasing the amount the company pays into pension pots may reduce the corporate tax liability. But you will need to give consideration to the individual’s personal tax position if contributions are increased.

Roll-over relief

Perhaps your company realised a large capital gain during the period, but you intend to reinvest the proceeds in another trade related asset? If the asset disposed of was a qualifying asset and the proceeds are intended to be reinvested in another qualifying asset, the corporate tax on the disposal may be deferred. The deferred gain would crystallise on the disposal of the new asset (unless these proceeds are again reinvested in a qualifying asset). The most common types of qualifying assets include:-

  • Land and buildings
  •  Goodwill
  •  Fixed plant and machinery

Share schemes

Employee share schemes are a great way to incentivise and reward staff for the work they do for the company. But they also offer the company an opportunity to get a deduction from its total taxable profits. This deduction is equal to the difference between the market value of the shares at the date they are exercised and the consideration paid by the employee (subject to certain qualifying criteria).

This article was written by David Emery from our London office. If you would like more advice on reducing your corporate tax liability, please contact David Emery