Reducing your Corporation Tax

/ Accounting, AIMS, Business and Economy, SME, Tax

Author: Henry Ejdelbaum

Tags: Corporation Tax, R&D, Tax, Tax return

Corporation Tax is a tax on the profits made by limited companies. Learn how reducing your corporation tax can save your company money.

It is payable once a year using a CT600 form. The CT600 is prepared using the information in the company accounts. Even if no tax is due, you still need to submit a CT600.

Even if it’s prepared by an accountant, the company director will approve it and the accountant will submit the return.

It is important that these submissions are made online.

When to submit 

You must submit your Corporation Tax return at some point between the date of your company year end and your statutory filing date. The statutory filing date is either 12 months after the year end, or three months after you receive a notice to deliver a return from HMRC – whichever is latest.

However, you may be required to pay your Corporation Tax bill before your return is due.

If your company has made a taxable profit of anything up to £1.5m, you’ll need to pay the Corporation Tax within nine months and one day after the end of your accounting year.

As an example, if your accounting year ends on 31 March, your Corporation Tax payment will be due on 1 January the following year, while your tax return is due three months later.

For businesses with a turnover of more than £1.5m, Corporation Tax must be paid in instalments.

If you file a company tax return and it’s found to be inaccurate, HMRC may fine you.

How much you have to pay depends on whether HMRC believes the mistake was deliberate, whether you tried to hide it, and whether you voluntarily admit to it before HMRC finds out.

If HMRC decides: 

  • You were careless: you could be charged between 0-30% of your tax bill if you admit it, or 15-30% if HMRC spots it. 
  • The inaccuracy was deliberate but not concealed: you’ll face a 20-70% fine if you own up, or 35-70% if HMRC uncovers it. 
  • The inaccuracy was deliberate and concealed: you may be charged 30-100% in fines if you disclose the error, and 50-100% if you don’t. 

How to reduce your Corporation Tax: 

  • Make pension contributions to yourself from the business. Anyone earning up to £150,000 can make £40,000 worth of contributions annually 
  • Make sure you deduct all allowable expenses such as marketing costs and the costs of raw materials 
  • Claims back the costs of overheads like staff salaries, employee benefits, office costs and insurance premiums 
  • Invest in training and development because these costs can be removed directly from your profits so will not be taken into account for Corporation Tax 
  • Claim capital allowances on capital investments such as plant and machinery and vehicles.  Up until March 2023 the Super deduction, is available for Plant and Machinery 
  • Seek professional advice from your accountant. See you if you can also claim R&D relief 

To find your local AIMS Accountant, please follow this link: Find your local AIMS accountant | AIMS Accountants for Business