Corporate tax rates can significantly impact a company’s financial health. Depending on your profit margins, the amount you pay in Corporation Tax can vary. Let’s dive into the latest rates for Corporation Tax and explore some savvy strategies for saving money, including factors such as pension contributions, relevant life cover, salaries within National Insurance (NI) allowances, company vehicles, and key man insurance.
The rate of Corporation Tax your company pays is contingent on your annual profits. Here’s a breakdown of the rates for Corporation Tax which have changed for 2023 (from April 1):
- Small Profits Rate (profits under £50,000) is 19%
- Main Rate (profits over £250,000): in 2023, companies with profits exceeding £250,000 will be taxed at a rate of 25%. In previous years, it has remained consistent at 19%.
- Marginal Relief: for profits ranging from £50,000 to £250,000, a marginal relief mechanism is in place, which gradually increases the effective Corporation Tax rate between 19% and 25%.
- Special Rate for unit trusts and investment companies: this rate remains at 20%
The best advice is to stay updated on the latest Corporation Tax rates and rules, especially if you’re in the range of £50,000 to £250,000 in profits, as marginal relief can impact your tax liability. Plan your business operations considering the changes in Corporation Tax rates, optimise profit extraction and minimise tax liability.
Strategies for tax savings
Now that you’ve got a grasp on the Corporation Tax rates, let’s explore strategies for saving on taxes while keeping in mind crucial financial elements:
- Pension Contributions: consider making tax-deductible contributions to employee and director pensions to reduce taxable profits. The government will also top up the employees contributions. Encourage employee participation in pension schemes to maximise tax savings while providing attractive benefits and regularly review your pension contributions to ensure they align with your financial goals and available tax reliefs.
- Relevant Life Cover: offer tax-deductible life insurance as an attractive employee and director benefit while saving on taxes. A Relevant Life Plan is a cost-effective way to arrange life insurance for employees. It pays a lump sum to the employee’s family if they die or are diagnosed with a terminal illness with a life expectancy of less than 12 months. Inform employees about the tax benefits of relevant life cover, enhancing its appeal as a part of your benefits package, and review your life insurance policies periodically to ensure they align with the changing needs of your workforce and tax regulations.
- Salaries within NI allowances: optimise director salaries within National Insurance thresholds to save money for the company. Regularly assess and adjust director salaries to ensure they fall within NI allowances, op- timising tax savings for both you and your company.
- Company vehicles: choose tax-efficient vehicles, particularly electric or low-emission ones, and maintain accurate records for tax benefits. Keep comprehensive records of company vehicle usage, maintenance, and expenses to maximise tax deductions and minimise liability, and stay informed about government incentives for eco-friendly vehicles to further reduce your company’s tax burden.
- Key Man Insurance: also known as Key Person Insurance, is a policy taken out by a business to protect itself financially in the event of the death or incapacity of a key individual whose skills, knowledge, or leadership are crucial to the company’s success. If the key person is no longer able to contribute, the policy provides the company with a financial cushion to help cover losses, recruitment costs, and other expenses. Key Man Insurance is also tax-deductible. Identify key individuals in your organisation who are crucial to its success, and ensure they are covered by Key Man Insurance. Keep accurate records of premiums paid for Key Man Insurance, as these are tax-deductible expenses.
In conclusion, understanding Corporation Tax rates and implementing smart tax-saving strategies can significantly impact your company’s financial health. Keep in mind that tax laws evolve, so staying up to date and seeking advice from tax professionals is essential for maximising your tax savings while maintaining compliance with the law. These laws can sometimes be tricky to navigate, so you should always speak to an accountant that can give you tailored advice.