Pay a Directors salary
Company owners should look to use their personal allowance effectively, by drawing a tax efficient combination of salary and dividends from the business.
Unlike dividends which are paid out of a company’s profit, a salary is classed as a business expense. The best approach for business owners is to pay themselves a mixture of dividends and salary. However, this option needs to be planned carefully as there are other factors at play such as income tax, National insurance contributions and personal circumstances.
Take advantage of the annual investment allowance
The UK government has an Annual Investment Allowance (AIA) for companies purchasing assets to keep and use in their business. This allows a company to set money spent on plant and machinery including fixtures and fittings, commercial vehicles and integral features against their profits for the year. Current AIA £1M until Dec 21, £200K from 1st Jan 22
Claim R&D tax relief
Your business could be missing out on a government tax relief for innovation. If your company is developing new products, processes or software it may be eligible for this tax relief. This can equate to additional tax relief of up to £ 24,700 for every £100,000 spent on research. If the company makes a loss, it could claim a tax credit which will be paid in cash.
For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a business can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and NICs liability. You currently have 2 years from end of the accounting period to claim.
Employee share scheme
Companies can obtain a deduction in corporation tax if they offer shares to their employees under certain schemes https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim44020 . Not only does the company benefit from this tax saving but offering shares can also increase staff retention and motivate employees at the same time.
Tax relief for creative industries
Creative Industry companies can benefit from additional corporation tax relief if they produce video games, animation programmes, certain films and TV programmes, theatrical productions, orchestral concerts or putting on a qualifying exhibition in a museum or gallery. There are eight different schemes. The relief is given in the form of an additional deduction, but the rules for each scheme vary, so it maybe wise to seek advice.
Companies can normally obtain a deduction from their profits for pension contributions paid into pension schemes on behalf of employees or directors. Payments must be made before the end of the accounting period to obtain relief. This is a quite straightforward way to reduce Corporation Tax, although consideration should also be given to the individuals’ personal tax position before making contributions.
Make sure that your business is claiming all available loss reliefs. There are different types of loss that a company can suffer, but in certain circumstances they can be carried back to a previous year (to generate a tax refund), carried forward against future profits or even surrendered to a fellow group company.
Subscription and training costs
Providing they relate to the activity of the company, training and subscriptions costs can be paid for by the company without the benefitting employee suffering Income Tax. The costs can be tax deductible for the company, resulting in the tax-free development of your staff