By victoria Taylor

What Does Corporation Tax Means?

Corporation tax is the tax any limited company is liable to pay on the company’s annual profit. Profits on which you pay your corporation tax include the money your company makes from trading, investments and any gains made by selling out assets like property, shares etc. Every company liable to pay corporation tax bills must file a tax return by the end of each accounting period which is usually 12 months, the same as the financial year covered by your annual accounts.

Who is liable to pay corporation tax?

Any company is liable to pay corporation tax on its annual profit if you are:

  • A limited company
  • A foreign company with a UK branch
  • A club or incorporated association

Note: If your company is not UK based and has an office/brank in the UK, then you’ll have to pay corporation tax only on the profits made from the UK activities.

It is crucial to make sure that you pay the right amount of tax, which can be done by maintaining a precise record of your company’s account. Moreover, it is equally essential to be aware of the ways you can reduce your corporation tax bills by taking advantage of the tax relief available for the companies. This blog will explain how you can reduce your company’s corporation tax bill, so you don’t miss out on any tax relief available, including valuable R&D tax relief. Companies look for ways to reduce their tax, and these tips will help you pay only the amount you need to while staying compliant.

1. Pay Yourself a Remuneration

When running a limited company, your company is a separate entity from you, so you can fix a regular salary for yourself. The salaries count as a company’s expense that significantly reduces the profit hence reducing your corporation tax liability. Paying yourself a combination of dividends and salary is the best approach for all business owners, but it should be carefully planned, keeping factors like income tax, NIC and other consequences in view.

Note: Some business owners pay themselves with dividends and salaries. But while doing that, you must be able to indicate the profits before the dividends are issued. Otherwise, the dividends will be classified as salaries by the HMRC, consequently increasing payable NIC and tax.

2. Claim All Your Expenses

You can reduce your corporation tax liability by claiming all the expenses incurred ‘wholly and exclusively’ for your company. It is wise to claim for all your business expenses, whether they are small or large. However, that’s an arduous task to keep track of each and every cost, but it can all add up to make a substantial amount of expenses which you can claim to reduce your company’s profit hence the corporation tax. By missing out on the expenses like travel expenses, reimbursement costs, and professional insurance contributions, you are letting the chance of reduction slip. If you and your staff use their personal phones for regular business calls, you can consider using the company’s mobile phone as no tax is changed from the cost of the phone or line rentals, and the company will receive tax deductions for that cost as well.

3. Claim Overhead Costs

There are many categories of allowable expenses related to your business, including overhead costs. This category includes the cost of employee wages, pension contributions, insurance, rent and maintenance cost of premises, bank charges and loans, travel costs, energy and utility costs.

 All you need to do is keep track of all the costs made on your business regardless of the amount, and don’t forget to claim each and every expense.

4. Claim Work From Home Allowance

Due to the pandemic, many businesses shifted to work from home and hybrid business models. If you occasionally work from home, you can claim any expenses as a deduction from your profit. However, companies working on work-from-home models occasionally are required to pay a fixed allowance set by HMRC. If you are working from home regularly, your expenditure will most likely exceed the HMRC’s fixed allowance; therefore, you must provide receipts for expenses made on utilities, internet and telephone.

5. Use Company’s Pension Contributions

Your company’s pension contributions are important for your employee’s benefit and your company’s corporation tax reduction. As your employer contributions are categorised as allowable expenses, they can be deducted from the company’s profit, reducing the corporation tax liability.

6. Claim R&D Tax Relief

Your company’s research and development investment are essential for your business’s future growth. Moreover, it also provides profitable corporation tax benefits by offering significant R&D tax relief against your eligible R&D expenditure. The UK government announced the R&D tax relief scheme to encourage investment in the research and development sector, and for years numerous businesses have been taking benefit from this lucrative scheme. You can claim R&D tax relief on the expenditure made on materials, utility, licences, staff wages, software development and overhead expenditure.


Square Finance is a team of R&D tax relief specialists, and we can help you significantly reduce your corporation tax bill with an R&D tax relief claim. R&D tax relief is a generous scheme created by the UK government to reduce a company’s corporation tax bill to reward their contributions to the R&D sector. Contact us, and we will help you evaluate your eligibility for the R&D tax relief claim and adeptly tailor your R&D tax relief claim maximising your claim value.










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