A-director’s-guide-to-corporation-tax-relief

A director’s guide to corporation tax relief 

As a limited company director, it’s mandatory to submit a corporation tax return within 12 months of the accounting year-end. This return incorporates various reliefs and allowances. Since you bear the ultimate responsibility for its accuracy, it’s wise to familiarise yourself with the corporation tax relief rules.

However, due to the frequent changes in tax legislation, comprehending these rules can be challenging. Seeking professional assistance is advisable to navigate these complexities, ensuring you can minimise your company’s liability without risking HMRC fines.

Vanguard Insolvency provides independent advice on corporation tax, enabling you to leverage all available reliefs for your business. As a significant part of the Begbies Traynor Group, the largest professional services consultancy in the UK, we are well-equipped to guide you through these matters.

 

What is corporation tax relief?

Corporation tax is levied on the profits of UK-based limited companies and the international branches of companies permanently residing here. UK GAAP (Generally Accepted Accounting Practices) and International Accounting Standards allow for deductions and reliefs on various business expenditures.

Utilising these reliefs can lower your company’s liability for corporation tax, but it’s a nuanced area that requires caution. Incorrectly claiming reliefs for which you are ineligible can draw the attention of HMRC, potentially leading to an investigation into the company’s tax affairs.

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Claiming corporation tax relief on business expenditure

(I). Research and Development (R&D) Relief

The R&D scheme permits the deduction of eligible research and development costs from trading revenues. Additionally, you might qualify for an additional 130% tax relief from your trading profits. There are two schemes available, depending on your company’s size – the Small or Medium-sized Enterprise (SME) Scheme and the Large Company Scheme.

(II). Tax relief on patents

The government’s Patent Box scheme provides a 10% relief on corporation tax. This scheme may be applicable if your company generates profits from its owned patented inventions or holds exclusive licensing rights to such inventions. Additionally, you might be eligible to use the scheme for a patented manufacturing process.

(III). Creative Industry Tax Reliefs (CITR)

Companies within the creative industries can benefit from seven distinct tax reliefs. These reliefs essentially augment the allowable expenditure that can be claimed, potentially providing a tax credit to eligible businesses.

(IV). Donations

Corporation tax relief can be claimed on donations made to charities and Community Amateur Sports Clubs (CASCs). It’s important to note that loans do not qualify for this relief; it must be a donation. Additionally, there are limits on the amount that can be claimed if a non-monetary item, such as tickets or passes, is received in return for the donation.

(V)Bonus payments

Accrued bonuses for directors and employees are eligible for tax relief if they are paid within nine months of your company’s accounting year-end.

(VI). Employee share acquisitions

When your employees acquire shares at an undervalue in the company, they become subject to income tax on the undervalue. Additionally, as the employing company, you may be eligible for corporation tax relief.

(VII). Employer pension contributions

If you make employer pension contributions into a registered scheme, you may qualify for tax relief. However, the legitimacy of these contributions may be questioned by HMRC if they predominantly benefit directors or shareholders to an unjustifiable extent.

(VIII). Business Asset Rollover Relief

When you sell a business asset, your company incurs liability for corporation tax on the chargeable gain. However, if you reinvest the proceeds from the sale into the acquisition of another asset solely for business purposes, you may be able to defer the tax payment.

(IX). Corporation tax relief for leased cars

You can avail of a 20% corporation tax relief when leasing a car for your business, calculated on the total annual sum minus VAT. In certain situations, leasing may be more cost-effective than purchasing a company car, as tax relief is contingent on its value and CO2 emissions at the time of purchase.

(X). For start-up companies

The Seed Enterprise Investment Scheme (SEIS) offers incentives for individuals to invest in your company, providing up to £150,000 in overall funding. This applies if your company has been trading for less than two years and has an asset base of under £200,000.

For additional guidance on corporation tax relief and strategies to reduce your company’s liability, Vanguard Insolvency can offer expert advice.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.