All you need to know about corporation tax relief

A director's guide to corporation tax relief

As a limited company director you’re required to file a corporation tax return within 12 months of the accounting year-end. The return will include various reliefs and allowances and because you, rather than your accountant, are ultimately responsible for its accuracy, it’s a good idea to get to grips with the corporation tax relief rules.

Unfortunately, understanding these rules and regulations isn’t always an easy task thanks to the frequent changes in tax legislation. It’s advisable to seek professional help in this respect, so you can minimise your company’s liability without the risk of incurring HMRC fines.   

Real Business Rescue offers independent advice on corporation tax which allows you to benefit from all the reliefs available for your business. We’re a major part of Begbies Traynor Group - the largest professional services consultancy in the UK.

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What is corporation tax relief?

Corporation tax is paid on the profits of limited companies based in the UK, and international branches of companies permanently resident here. Under UK GAAP (Generally Accepted Accounting Practices) and International Accounting Standards, deductions and reliefs are available on a number of business expenditures.

Claiming these reliefs reduces your company’s liability for corporation tax, but it’s a complex area that can lead to problems if you’re not careful. Claiming reliefs when you’re ineligible attracts the attention of HMRC, and can instigate an investigation into the company’s tax affairs.

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Claiming corporation tax relief on business expenditure

Research and Development (R&D) Relief

The R&D scheme allows for the deduction of qualifying research and development costs from trading revenues. You may also be able to claim a further 130% tax relief from your trading profits. Two schemes are available depending on the size of your company – the Small or Medium-sized Enterprise (SME) Scheme, and the Large Company Scheme.

Tax relief on patents

The government’s Patent Box scheme offers 10% relief on corporation tax, and may apply if your company makes a profit from its owned patented inventions, or those to which you have exclusive licensing rights. You may also be eligible to use it for a patented manufacturing process. 

Creative Industry Tax Reliefs (CITR)

Seven different tax reliefs are available for companies within the creative industries. These essentially increase the level of allowable expenditure that can be claimed, and potentially offer a tax credit to eligible businesses.

Donations

You can claim corporation tax relief on donations made to charities and Community Amateur Sports Clubs (CASCs). If a loan is provided it wouldn’t qualify, however – it has to be a donation. There are also limits on the amount that can be claimed should you receive a non-monetary item in return for the donation – tickets or passes, for example.

Bonus payments

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

Employee share acquisitions

When your employees acquire shares at an undervalue in the company, they become liable for income tax on the undervalue. A corporation tax relief is also available for you as the employing company.

Employer pension contributions

If you pay employer pension contributions into a registered scheme, you may be able to claim tax relief. This depends on the level of contributions made - if they’re purely benefitting directors or shareholders to an unjustifiable extent, HMRC may question their legitimacy.  

Business Asset Rollover Relief

When you sell a business asset, your company becomes liable for corporation tax on the chargeable gain. By reinvesting the proceeds from sale into the purchase of another asset that’s used purely for business purposes, you may be eligible to defer the tax payment.

Corporation tax relief for leased cars

You can claim 20% corporation tax relief when you lease a car for your business - it’s available on the total annual sum minus VAT. In some cases this can be cheaper than buying a company car, as tax relief depends on its value and CO2 emissions on purchase.

For start up companies

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

Real Business Rescue can provide further advice on corporation tax relief, and how to minimise your company’s liability.