Entrepreneurs are rarely legal experts, yet there will be a large amount of complex legislation that they have to work with as part of owning and running an SME. Whereas bigger businesses will be able to simply hire in-house experts to deal with the hard parts, smaller companies rarely have the budget for this, which makes it necessary to brush up your knowledge and try to get on top of things for yourself.
Corporation tax is just one area of legislation that you’ll have to deal with. The money that you’ll be charged on your profits, it is currently set at 19 percent of your earnings – or almost one fifth of the money that you’ll make – so you certainly do not want to be paying over the odds.
This is why it’s so important to understand what the law classes as your allowable expenses. Take a look at our brief guide below to learn more…
What is Corporation Tax?
Corporation tax is the money that you’ll be charged each year against your business profits i.e. the money you’ve made from doing business, investing, or selling assets. This is not the same as your turnover.
In fact, the amount you will be charged against is not your profits exactly, but your profits after your expenses have been deducted. This means that if you had a turnover of £600,000 per annum, but £200,000 could be subtracted as expenses, you would only have made £400,000 in terms of your profits. Thus, you would be liable to pay £76,000 to HMRC, as opposed to £114,000.
What are Expenses?
In order to avoid paying over the odds, you must therefore understand what can be counted as expenses, in order to make the total of your taxable profits as low as possible. These could include:
- Equipment and machinery purchased for business purposes
- Paying a small salary to yourself
- The cost of running your vehicle
- Home running costs (if you work from home)
- Contributions made into a pension scheme
- Employee childcare costs
- Air, train, bus, and taxi fares
- Parking, congestion, and toll charges
- Hotel fees
These are only the beginning of what you can claim for, and you’ll soon realise that a significant amount can be deducted from your taxable profits just by being clever about how you calculate your expenses.
Who Can Help Me?
Not everyone feels capable of completing their corporation tax return by themselves, but if you’re struggling, there is lots of assistance out there. The government helpline is a great place to start, although if you would prefer for someone else to take care of the task for you, accountants, tax advisers, and legal specialists like Withers Worldwide are all amply qualified for the job.
How much will you manage to save yourself by turning the letter of the law to your advantage?