Knowing how to reduce taxes for your UK business can make a big difference in your profits. The UK tax system offers several legal ways to cut your tax bill. So, you just need to understand the options and make sure your company stays compliant.
In this article, we’ll show you simple, legal strategies to help you save on taxes without stress or risk.
Keys to Reduce Taxes for Your Business in the UK
1. Choose a tax-efficient business structure for your business in the UK
The legal structure of your company affects how much tax you pay. For most small and medium businesses in the UK, the best option is a Limited Company (LTD). This setup means you’ll pay Corporation Tax on your profits. The current rate is 25% if you earn over £250,000. However, lower profits benefit from a tapered system with reduced rates.
Compared to being a sole trader, a LTD lets you separate your personal and business finances and access more tax benefits.
2. Use a mix of salary and dividends
Many UK business owners use a mix of salary and dividends to reduce personal tax. Dividends are payments made to shareholders from profits. By paying yourself a low salary (within the tax-free allowance) and taking the rest as dividends, you can lower your personal tax bill.
Dividends are taxed at lower rates than salary, and there’s also a tax-free Dividend Allowance. This can help you save both as an individual and as a business.
3. Claim all possible business expenses to reduce taxes
You can take advantage of tax-deductible expenses to save money. In the UK, you can deduct a wide range of costs related to your business, including:
- Office or coworking rent
- Professional services (accounting, marketing)
- IT equipment and software
- Business travel and transport
- Phone and internet costs
- Training and development
Even if you work from home, you can claim part of your household costs like electricity or rent, as long as they relate to your business. But remember to keep clear records and receipts for all expenses.
4. Invest in R&D and claim tax relief
If your company develops new products, processes or tech, you may qualify for R&D Tax Relief. This government scheme can reduce your Corporation Tax or give cash back if you’re not profitable yet.
It applies to tech firms and other businesses that improve or create something innovative. It’s smart to get expert advice when applying for this incentive, as the process can be complex.
5. Use pension contributions to save tax
Paying into a company pension scheme, such as a Director’s Pension, is a tax-efficient way to plan for the future. Contributions made by the company are deductible as expenses. Plus, you won’t pay personal tax on them until you take the money out later.
This strategy helps reduce your business profits (and your tax bill), while also securing long-term savings for you or your staff.
6. Manage VAT wisely
VAT (Value Added Tax) applies if your business turnover is over £90,000 per year. If you’re registered, make sure to charge VAT only where required and claim back VAT on business-related purchases.
You might also consider special schemes like the Flat Rate Scheme. It simplifies VAT reporting and can reduce what you pay in some cases.
Conclusion: Reduce taxes and grow your UK business
Reducing taxes for your UK business is possible with the right knowledge and planning. From choosing the right structure to mixing salary and dividends, claiming expenses, or using R&D reliefs, every step counts.
With proper guidance and a smart strategy, you can stay compliant and boost your business’s bottom line. Want to make the most of your UK company? Start reviewing your tax plan today.
