Corporation tax is a major cost for businesses. The rate you pay depends on your company’s annual profits:

• Profits under £50,000 suffer Corporation Tax at 19%.
• Profits over £250,000 suffer Corporation Tax at 25%.
• Profits between £50,000 and £250,000 suffer Corporation Tax at 26.5%.

At £50000, you suffer tax at 19%. At £250,000, you suffer tax at 25% on all your profits. So, between £50000 and £250000, there is a transitional or catch-up rate, hence why the marginal rate is higher.

If you control more than one company, these limits are spread evenly across all your companies. The limits cannot be allocated in any other way.  So if one company has little or no profit, while another has profits above £25000, you are wasting your 19% rate band. Try to equalise profits between companies.

Ways to reduce your corporation tax bill:

• Investing in business assets – Claim capital allowances on equipment, vehicles, and software
• Making pension contributions – Employer pension contributions are tax-deductible
• Salaries are tax-deductible in the company, but paying dividends can be more tax-efficient overall. You pay a lower rate of income tax personally on the income, and there is no National Insurance.

But if cash flow is an issue, paying the tax preserves more cash in the business, and that may be most important for you at the moment.

VAT Considerations.

In most cases, if your turnover exceeds £90,000, you must register for VAT, but choosing the right scheme can save money:

• Flat Rate Scheme – Simplifies VAT accounting and can reduce VAT bills. The flat rate percentage can often work in your favour.
• Cash Accounting Scheme – Pay VAT only when invoices are settled, improving cash flow and easily getting VAT relief on bad debts.