Managing Corporation Tax

Managing your corporation tax liability

A successful business often sees an increase in profits, but these usually go hand in hand with higher corporation tax liabilities. While there are limited opportunities to reduce corporation tax in isolation, there are ways to manage profits in a tax efficient way that can support the wider financial objectives of the business.

Key to a tax efficient strategy is to look beyond the corporation tax bill itself. If you own the company, how much do you need to take out? How are you taking it, and what tax are you paying personally? These decisions need to be considered alongside the company’s tax liability.

Managing surplus profits

Where there is surplus cash, it is important to consider how this is best managed. Retaining excess profits within a trading company may not always be the most tax efficient solution as it can impact on the shareholder reliefs available:

• Substantial non-trading activities can prevent shareholders from qualifying for Business Asset Disposal Relief on a sale of their shares.
• A business mainly involved in investment activities may not qualify for Business Property Relief for inheritance tax. Even where it qualifies, surplus cash not needed for the business can fall outside the relief.