Tax is in the news. There is though, a world of difference between tax evasion and tax avoidance. The latter is legal, the former isn't. However, even without getting into complex tax planning schemes, there are a whole range of government reliefs and benefits that can help companies. Here are some suggestions how employers can cut their tax bill.
Research and development costs
One way in which a company can either reduce their tax bill or get cash back from HMRC is by claiming research and development (R&D) tax credits.
This incentive can apply to companies that spend their time carrying out practical development work, and additionally isn't just restricted to the core research carried out by the R&D team. Any company that carries out any type of technical testing – this can apply to software development as much as pure scientific research – and can show that the testing is an integral part of their work can include this in their claim which provides a cash benefit of up to 33% of qualifying R&D expenditure. For more information about this little known tax allowance, you might like to contact Innovation Plus and discover if your company is eligible.
National Insurance for employers
The Simply Business website suggests that all employers make sure they are claiming their full National Insurance (NI) allowances if they pay Class 1 NI contributions. Under changes announced in 2013, employers can 'reduce their NI contributions by £2,000 per tax year' under Employment Allowance. 1.25 million employers could benefit from these changes. Small companies are the main beneficiaries and they will be able to receive a deduction in their annual tax bill.
If you're interested in this allowance and think your company may be eligible, then apply through your Employer Payment Summary form. The Guardian claims that this allowance will cost £6bn over five years, and will allow employers in small companies to employ staff without having to carry the costs of NI contributions.
Pensions schemes are good new for all
If you're an employer you could make savings to your tax bill through your contributions to your employees' pension scheme. If your contribution is seen as salary replacement this sum can be taken from the company's profits and you could see savings of up to 34% in NI and tax. Most business owners are effectively employees of their own companies as well as employers. Pension contributions can produce an NI saving of 13.8% for an employer. It's a good idea to seek the advice of a professional in order to benefit from the tax and NI savings under this scheme.
Charity starts at home, or with HMRC
The word 'charity' isn't always associated with end of year accounts or your annual tax bill, but many employers have found that it is beneficial to donate to charities in order to reduce their corporate tax bill. It's estimated that UK companies pay £7.15 billion more in tax than is necessary. Companies and individuals can cut their tax bills through a scheme of charitable giving, under the Gift Aid scheme. The This is Money website suggests that you should contact HMRC in order confirm that the charity you intend to help is recognised by the tax authorities. All gifts to charity can reduce your capital gains tax bill but it's always a good idea to visit HMRC for further details.