It’s already one of the lowest rates in Europe, and corporation tax in the UK is set to decrease again next year.
Having been cut from 20% to 19% in 2017, the main rate will change to 17% from April 2020.
The Government said the measure will help to “provide the right conditions for business investment and growth” – and it’s good news for the 1.1 million companies that will see lower corporation tax bills as a result.
Corporation tax planning
Corporation tax is paid on a company’s taxable profit in its annual accounting period, but this is more complex than it sounds.
It involves working out your company’s liability by calculating several different items.
You can deduct various costs involved in running your business, but anything you or your employees get personal use from must be treated as a benefit.
You can also deduct capital allowances, for assets such as equipment and machinery that you keep to use in your business.
Other reliefs include those for research and development (R&D), patented inventions, creative industries, disincorporation, and certain kinds of losses.
What else is changing for companies?
Keeping up with legislative changes is an important part of tax planning for a company. Here are some areas to be aware of in the next few years.
The off-payroll working rules known as IR35 have become a controversial topic among contractors.
They’re intended to target workers who supply their services to clients through an intermediary – such as a limited company – but who would otherwise be considered an employee.
Updates to the rules were rolled out for the public sector in 2017, and are set to apply to the private sector from April 2020.
Digital services tax
A new digital services tax is set to be introduced from April 2020, as an “interim response” pending global reform in this area.
This is intended to target multinational technology giants, which are often criticised for not paying enough tax in the UK, and should not affect smaller digital firms.
R&D relief for SMEs
Businesses with less than 500 staff and a turnover under €100m, or a balance sheet total under €86m, can claim SME R&D relief.
The scheme is intended to support businesses with innovative projects, but the Government has identified fraudulent attempts to claim relief.
It is currently consulting on ways of preventing the abuse, including introducing a cap on the amount of payable tax credit a loss-making business can receive.
Enhanced capital allowances
Enhanced capital allowances are a type of first-year allowance. These allow businesses to write off 100% of the cost of qualifying investments against their taxable income.
The Government has said it is ending enhanced capital allowances for energy and water-efficient plant and machinery from April 2020 onwards.
However, it is introducing an enhanced allowance for expenditure on electric vehicle charge points.
As corporate tax regulations become ever more complicated, our experienced team can help you make sense of them and ensure you have the right information on your returns.