Contractors' Questions: Can my limited company cut its tax bill?

Contractor’s Question: What’s the legitimate way to claim corporation tax deductions, which were recently used improperly by one businessman?

I’d like to know if a normal limited company paying the small companies’ rate can cut its tax bill by getting a deduction, or is such relief reserved for big businesses, such as PLCs? If it’s not, how much of a saving could I be looking at?

Expert’s Answer: Corporation tax reliefs operate in various different ways and there are several different reliefs available to limited companies.

Some of the reliefs reduce the profit that the company pays tax on, like capital allowances which are how relief is given when most new equipment is bought. Other reliefs reduce the tax bill itself, like Research and Development (R&D) tax credits. As an example, capital allowances can reduce the profit that the company pays tax on by up to 100% of the value of the new equipment that you've bought. As you can work out, these reliefs aren’t to be sniffed at!

Most of the reliefs, including relief if you’ve made losses, are available to limited companies of all sizes, no matter how small. Some, like the R&D relief, have different regimes for different size companies and can indeed be more favourable to small companies.

How much tax saving results would depend on how much has been spent and the company's accounts otherwise, so you would need to have a chat with an accountant to get a precise reading on the extent of the relief which you would see. In addition, HM Revenue & Customs lists the reliefs on offer and provides details, so you can gauge your eligibility and how you would go about claiming them before you get tailored guidance from an adviser.

The expert was Emily Coltman FCA, chief accountant to FreeAgent, an online accountancy platform for freelancers, contractors and the self-employed.

Editor’s Note: Further Reading –

Contractors’ Questions: Can I get tax relief on my website business?

Contractors’ Questions: What’s in the Patent Box?

Contractors’ Questions: How to claim for kit bought before my ‘Ltd’ began?

Monday 15th September 2014