Using Tax Benefits To Increase Your Profits

As a form of business structure, a limited company offers many tax benefits to its owners. In this blog, we’ll explore some of the tax advantages of an English limited company and how you can utilise them to maximise your profits.

1. Corporation tax

One of the primary tax benefits of a limited company is that it is subject to corporation tax, which is currently set at 19% for the 2022-23 tax year. This rate is significantly lower than the higher rate of income tax, which can be up to 45% for individuals. By paying corporation tax on their profits, limited companies can retain more money in the business to fund growth and expansion.

2. Tax-deductible expenses

Limited companies can also claim tax deductions for various expenses, including office rent, equipment, salaries, and other business-related costs. These expenses can significantly reduce a company’s taxable profits, resulting in lower tax bills.

3. Capital allowances

Limited companies can also claim capital allowances for the purchase of business assets, such as machinery, vehicles, and equipment. Capital allowances allow businesses to offset the cost of these assets against their taxable profits, reducing their overall tax liability.

4. Dividend tax

Owners of limited companies can also benefit from a lower tax rate on dividends than they would pay on regular income tax. In the 2022-23 tax year, the first £2,000 of dividends is tax-free, and any amount above this is subject to a lower tax rate of 7.5% for basic rate taxpayers. Higher rate taxpayers pay 32.5%, while additional rate taxpayers pay 38.1%.

5. Personal pension contributions

Another tax benefit of a limited company is that owners can make personal pension contributions through the company. These contributions are tax-deductible and can significantly reduce the company’s taxable profits, resulting in lower tax bills.

To utilise these tax benefits effectively, limited company owners should keep accurate records of all their business expenses and ensure that they claim all eligible tax deductions. They should also consult with a qualified accountant or tax professional to ensure that they are making the most of all available tax planning strategies.

In conclusion, English limited companies offer significant tax benefits, including lower corporation tax rates, tax-deductible expenses, capital allowances, lower dividend tax rates, and personal pension contributions. By utilising these tax advantages effectively, limited company owners can maximise their profits and grow their business more efficiently.