Reducing Corporation Tax - How do the Big Firms do it?

robert_harper_2000

In the Financial Times I've been reading how Sainsbury's pays lots into Pensions and ends up with a Tax credit? My business is about to pay just over £11k in Tax yet I broke even!! Sainsbury's has made a lot more than me!!

What are the ways to reduce this Tax?

I found the following examples;
hmm I'll try & find them, I did write them down

Debt_Free_Chick

So is the tax credit directly as a result of the pension contribution?

robert_harper_2000

I think so I was reading it in Barclays so didn't get time to read all of it. I think the AA also paid out its profits to its shareholders and somehow avoided paying tax by creating a debt or sth.

I found what I had written down before
-Pushing off sales into next year or accerating expenditure
-Making specific provisions against bad stock
-use allowance for R&D expediture
-100% allowance for energy saving equipment

Bean_Counter

robert_harper_2000 wrote: »

I found what I had written down before
-Pushing off sales into next year or accerating expenditure
-Making specific provisions against bad stock
-use allowance for R&D expediture
-100% allowance for energy saving equipment

These sound like standard business practice that many companies of all sizes adopt. There is nothing particularly iffy about them. A similar example for a smaller business would be capital expenditure to get the 50% first year capital allowance.

You have to of course remember that in many of these instances, for example the energy saving equipment, the company has parted with hard cash before getting the tax break. Also the government uses these types of things to encourage companies to act in a certain way, for example encouraging the use of energy saving equipment.

This is where a company's accountants should give advice on reducing tax bills.

Pennywise

I saw a similar feature on last nights BBC news. They seem to be making something out of nothing. Paying into a company pension scheme is a cost - the money goes out of the company for the benefit of its staff - therefore, it makes less profit, and therefore pays less tax. Same with investment in R&D, energy efficiency, etc., the company is spending money, reducing profit, so less profit means less tax. I couldn't really see the point they were trying to make, as there is nothing to stop even the smallest of companies doing this kind of thing. At the end of the day, the company pays out money, reduces its profits, so pays less tax. Even the smallest of companies could buy equipment, pay higher wages to its directors, pay into a pension scheme, invest in energy efficiency or R&D etc. I was completely baffled by why it got any air time at all. At first based on the headlines, I was expecting to see "dodgy" schemes being highlighted (of which there are plenty), such as using offshore tax havens, dodgy financing deals, etc., but these weren't mentioned at all.

dejongj

robert_harper_2000 wrote: »

In the Financial Times I've been reading how Sainsbury's pays lots into Pensions and ends up with a Tax credit? My business is about to pay just over £11k in Tax yet I broke even!! Sainsbury's has made a lot more than me!!

I'm no expert but something does not seem right here. Isn't Corporation Tax, tax on profits? So assuming you fall within small companies relief i.e. profits not exceeding £300k, an £11k tax bill suggest that you made a profit of £55k at current years rates....Not exactly breaking even...Or am I missing something?

Lazy_Runner

With the AA and Saga, it seems they paid no tax because the private equity groups that bought them, made them take on massive loans. As like any other business, the interest payments on a loan can be set against profits.

More details here:
http://news.bbc.co.uk/1/hi/business/6263866.stm

scoobydoo2_2

dejongj wrote: »

I'm no expert but something does not seem right here. Isn't Corporation Tax, tax on profits? So assuming you fall within small companies relief i.e. profits not exceeding £300k, an £11k tax bill suggest that you made a profit of £55k at current years rates....Not exactly breaking even...Or am I missing something?

Certain expenditure is not tax deductable so you could show an accounting loss but make taxable profits once none tax deductable items are added back.

dejongj

scoobydoo2 wrote: »

Certain expenditure is not tax deductable so you could show an accounting loss but make taxable profits once none tax deductable items are added back.

Ah I didn't know that, thanks. Now I am getting interested to understand what expenditure a business has that is not tax deductable, guess it would be on the HMRC website....

kaya

if you dont want to pay corporation tax on your profits then dont make any money, a good friend of mine has just sold a business for 5mil, if the money is in the bank he pays tax on it, if he invests it (property for example)then he has no profits for the year and tells the taxman to come back next year when his investments have paid out:j

robert_harper_2000

Well I think our dividends are also taken out so once you have paid the Tax bill minus dividends and there is something else that comes out then it means we broke even roughly.

Just wanted to improve our situation. I've been reading about Pensions and prolly a good idea?