Corporation Tax

Corporation Tax Reliefs and Penalties, You Should Be Aware Of

Written by: Liez Comendador

Reviewed by: Fahad Lateef

Updated on June 24, 2021

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Corporation tax is the principal charge that a limited company or enterprise should pay. Corporation tax should be paid both on the company’s profits and any increases from selling resources that have expanded in esteem. Sole dealers and associations don’t settle for corporation tax; however, they instead cover income tax (on business benefits) and capital gains charge (on any addition from the offer of resources).

Unfortunately, due to COVID-19 hanging on our necks for the past two years, paying our expenses has become difficult. This article will help you understand the ways of availing Corporation Tax Reliefs created through the loopholes of tax reforms.

Corporation Tax Reliefs

The UK corporation tax system is a self-evaluation system, implying that the citizen is liable for figuring his/her available benefits, including whether any reliefs apply, tax changes are required, or whether any aversion rules apply.

This article will provide you a thorough understanding of availing the corporation tax reliefs. All the mentioned data is procured from the UK government official site and if you want to learn more about the said data, click the link given at the end of every topic. In the following ways, you can minimize (relief) Corporation Tax;

Capital Allowances

Capital allowances guarantee capital use can be expensed against your yearly pre-tax income. Hence, you ought to review the consumption you’ve incurred on your business property to decide if you meet all requirements for capital allowances. This permits you to think back truly, too as the case doesn’t need to be made when the expenses were brought about. This implies you could guarantee missed allowances going back quite a while.

Source: Claim capital allowances

The Annual Investment Allowance (AIA)

The Annual Investment Allowance (AIA) is a sort of tax relief for British businesses assigned for the acquisition of business equipment. The AIA permits a company to deduct the aggregate sum of qualifying capital consumption up to a specific cutoff from its available profits in a given tax year. This allowance is reserved for the acquisition of business equipment, primarily devices, and apparatus.

The AIA is an assessment recompense for capital consumption, particularly the acquisition of hardware as devices and apparatus. It works whereby you can deduct this particular expenditure, subject as far as possible from your available profits for the tax year.

The Super Deduction

In Budget 2021, the Chancellor reported the Super Deduction. If your business is designating assets for speculation, and you could be qualified for this tax allowance. If a venture is in qualifying plant and machinery from April 1, 2021, then you’ll profit with a 130% benefit against your available services for that use. Companies are subject to this relief till March 31, 2023.

If you need help in configuring tax reliefs for your business, Legend Financial has a team of experts who can help you on your concern. Send us a message or schedule an appointment with us today through the link below.

Expenses

Certain expenses can help you keep the business running, which means they can claim them by deducting through the income while calculating profits. HMRC provides a list of allowable business expense, which includes;

Stock bought for resale
Purchase of raw materials
Salaries of all employees
Employers’ National Insurance Contributions (NICs)
Employer pension contributions
Business insurance
Business-related travel and accommodation
Training fees
Accountancy costs

You can attain relief on the mentioned subjects. But, keep in mind that you will not get any relief on the machinery or any assets bought by the company.

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R&D Tax Relief

Research and Development relief is given to the companies that support advancement and innovation in the field of science and technology. Research and development relief provides financial help through the asserting organization’s corporation tax computation. The relief is organized so that both profitable and loss-making organizations may both advantage by making a case.

For profitable companies, the benefit is accomplished through a decrease in their tax liability. For previous years these outcomes in reimbursement of overpaid tax. This decrease on average is equivalent to 25% of the qualifying R&D expenditure caused. For loss-making organizations, the R&D guarantee will build the emerging loss. This would then be able to be set against prior and future profits of the organization. Then again, the loss inferable from the R&D action can be given up to HMRC, thus for a money installment.

If your business is productive, tax relief is provided as an enhanced deduction from available benefits at a pace of 130% of the passing R&D use. On 28 August 2020, HMRC refreshed its Corporate Intangibles Research and Development Manual to give direction on the accessibility of innovative work relief and innovative work expenditure credit on the expenses of furloughed representatives.

If you want to know more on this relief, you can read this link on the complete guide set by the HMRC

Business Asset Rollover Relief

When you sell a business resource, your organization gets obligated for corporation tax on the chargeable profits. However, by reinvesting the returns from the deal into acquiring another resource that is utilized only for business purposes, you might be qualified to concede the tax payment. The relief must be availed within four years of the end of the tax year you bought a resource. For example, if you sell or dispose of the old asset in May 2019 and buy the new asset in June 2021, you need to claim relief by 5 April 2026.

Source: Business Asset Rollover Relief

Losses

Make certain to utilize loss reliefs where this is important. Contingent upon the losses, these can be conveyed back to a previous year, which creates a tax deduction or even against future profits.

“You get tax relief by balancing the loss against your business’s different gains or profits in the same accounting period.”

You can likewise decide to convey the loss back. If you don’t, it will be conveyed forward to another accounting period.

Source: Work out and claim relief from Corporation Tax trading losses

The Patent Box

If your business creates benefits from licensed items or services, you could lessen your tax liability. The Patent Box Tax Regime works by permitting you to bring down your company charge obligation (tax liability) to 10% for profits that can be ascribed to licenses that create income in the UK and Europe. You might be wondering who can get benefit from patent box?

You can get benefit if your company is;

Liable to Corporation Tax
Making a profit from exploiting patented inventions
Owning exclusively licenced-in patents
Undertaking qualifying development on the patents

Source: Use the Patent Box to reduce your Corporation Tax on profits

Bonus Payments

You ought to be familiar with the (nine month) rule requiring gathered salary or rewards to be paid through PAYE within nine months of the accounting period frame end to be qualified for a corporation tax abstraction in the year in which an arrangement is made instead of the time of actual payment. 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.

A Staff Party

If you give a yearly staff party, say throughout the summer or at Christmas, at the expense of up to £150 per head, this is tax-exempt for your staff and tax-deductible for the organization. Such occasions are an award to staff for their endeavors, assisting with developing worker brand dependability.

Training

As indicated by tax enactment, tax relief is passable for training costs just when the training is entirely for business purposes. It basically alludes to workshops and courses that update existing business or expert information and incorporates training needed to keep up the enrollment of an expert. Preparing and related memberships that are pertinent to your business can be paid for by the organization. This guarantees your workers don’t cause an income tax charge on this expense. For the organization, these expenses are charge deductible.

Employer Pension Contributions

If you pay employer annuity commitments into an enlisted scheme, you might have the option to avail of corporation tax relief. This relies upon the degree of commitments made – on the off chance that they’re simply profiting directors or investors to a baseless degree, HMRC may scrutinize their authenticity.

Employee Share Schemes

Costs brought about in setting up and working an employee’s offer plan (share scheme) might be deductible for corporation tax purposes either under a particular authoritative arrangement or under the general provisions managing corporate consumption.

“The deductibility of costs will rely on the sort of employee sharing scheme the organization operates.”

You might have the option to get an allowance in corporation tax if you utilize a passing employee share scheme. Please make certain to look for counsel on which plots this applies to and which one is most appropriate to your business conditions.

Source: Tax and Employee Share Schemes

Employee Share Acquisitions

When your employees acquire shares at undervalue in the company, they become liable for income tax on undervaluing. A corporation tax relief is also available for you as the employing company. Shares are frequently procured by employees and directors not long before an organization is sold.

Accordingly, this corporation tax relief generally emerges concerning corporate deals and acquisitions. The purchaser and seller will normally need to concur forthright which of them will be qualified to benefit from any such relief and incorporate explicit arrangements managing this in the sale documentation.

Donations

You can guarantee corporation tax relief on gifts made to noble cause/charities and Community Amateur Sports Clubs (CASCs).

“If a loan is given, it won’t qualify; nonetheless – it must be a gift.”

There are additional restrictions on the sum that can be asserted should you get a non-financial thing as a trade-off for the gift – tickets or passes, for instance. Tax relief must be asserted for the accounting period frame during which the payment is made. It confines the measure of corporation tax profit accessible for that period. A gift/donation to a foundation cannot be gained to make a loss for Corporation Tax purposes.

Source: Tax Relief When You Donate To a Charity

Creative Industry Tax Reliefs (CITR)

Seven diverse assessment reliefs are accessible for organizations inside the creative enterprises. These increment the degree of permissible use guaranteed and possibly offer a tax reduction to qualified organizations such as:

Film industry
Video Games industry
Theatres
Orchestra

Source: Creative Industry tax reliefs for Corporation Tax

Corporation Tax Penalties

It’s imperative to comprehend the regular slip-ups that can prompt a penalty. You might get a penalty by HMRC in the following cases

Return errors
Delayed payment
Non-availability of proper records
Late filing of tax return

“Your Corporation Tax return is paid within the 12 months of your accounting period only if you’re a limited company”

The deadline to pay your Corporation Tax bill is usually nine months and one day after the end of your accounting period. Following are the penalties for your novice behavior by the HMRC;

For Late Tax Returns:

Following penalties have been set by HMRC if you are late for filing the tax return:

£100 fine being late for one day
Another £100 fine for three months
After a period of six months, HMRC will evaluate your bill and add a 10% penalty onto what it considers your unpaid tax will be

Late corporation tax payments

Interest will be charged on the amount you owe to HMRC or you have to pay the penalty if you are late in paying the tax. HMRC has the power to carry out an action to recuperate any money due.

False information

If you file a company tax return and it’s found to be inaccurate, HMRC may fine you. How much you have to pay depends on whether HMRC believes the mistake was deliberate, whether you tried to hide it, and whether you voluntarily admit to it before HMRC finds out. If HMRC decides:

Source: Easy Guide for Beginners on How to Pay Corporation Tax

This article sets out the UK business tax ramifications of the 2019 novel coronavirus infection (COVID-19) flare-up, which has set off worldwide limitations on movement, changes in working practices, and issues of income and liquidity for business. It incorporates changes to different HMRC practices and systems set off by COVID-19, just as considering issues under existing tax enactments that may emerge (or turn out to be more intense) because of the unique conditions and financial circumstances.

We have helped make you understand the basic means of availing corporation tax reliefs and tax penalties. If you have more queries, contact us at Legend Financial, as we have a competent team to help you get through managing your finance and making new investments.

References

Business Tax: Claim Capital Allowances. (n.d.). Retrieved from Gov.Uk Website: https://www.gov.uk/capital-allowances

Capital Gains Tax: Business Asset Rollover Relief. (n.d.). Retrieved from Gov.Uk Website: https://www.gov.uk/business-asset-rollover-relief

Charities, Volunteering and Honours: Tax relief when you donate to a charity. (n.d.). Retrieved from Gov.Uk Website: https://www.gov.uk/donating-to-charity

Corporation Tax: Use the Patent Box to reduce your Corporation Tax on profits. (2020, May 7). Retrieved from Gov.Uk Website: https://www.gov.uk/guidance/corporation-tax-the-patent-box

Corporation Tax: Work out and claim relief from Corporation Tax trading losses. (2021, June 9). Retrieved from Gov.Uk Website: https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss

Income Tax: Tax and Employee Share Schemes. (n.d.). Retrieved from Gov.Uk Website: https://www.gov.uk/tax-employee-share-schemes

Reliefs: Creative Industry tax reliefs for Corporation Tax. (2018, February 15). Retrieved from Gov.Uk Website: https://www.gov.uk/guidance/corporation-tax-creative-industry-tax-reliefs

Author

Fahad Lateef

Fahad is a Chartered Certified Accountant (ACCA), proficient in numeracy and impassioned with giving concise advice to a wide range of clients related to different industries. With an immense experience of over a decade, he has worked as an advisor on different projects run by audit giants like Deloitte and others. He is a firm believer in mutual growth and an established culture of embracing change.
View all posts

Reviewed by:

Fahad Lateef

Fahad is a Chartered Certified Accountant (ACCA), proficient in numeracy and impassioned with giving concise advice to a wide range of clients related to different industries. With an immense experience of over a decade, he has worked as an advisor on different projects run by audit giants like Deloitte and others. He is a firm believer in mutual growth and an established culture of embracing change.

Fahad Lateef

2 thoughts on “Corporation Tax Reliefs and Penalties, You Should Be Aware Of”

Vanessa Francisco
15 July 2021 at 3:06 PM

Above is a clear cut guide on how to maximize reliefs and avoid penalties!

Reply
1. Fahad Lateef
  16 July 2021 at 9:41 PM
  
  Hi Vanessa,
  
  Thank you for liking the article
  
  Please free to give a call should you need more consultant about reliefs and avoiding penalties
  
  Regards,
  Fahad
  
  Reply

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Corporation Tax Reliefs and Penalties, You Should Be Aware Of

Contents

Corporation Tax Reliefs

Capital Allowances

The Annual Investment Allowance (AIA)

The Super Deduction

Expenses

R&D Tax Relief

Business Asset Rollover Relief

Losses

The Patent Box

Bonus Payments

A Staff Party

Training

Employer Pension Contributions

Employee Share Schemes

Employee Share Acquisitions

Donations

Creative Industry Tax Reliefs (CITR)

Corporation Tax Penalties

For Late Tax Returns:

Late corporation tax payments

False information

References

Author

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