On The Spot Blogs
How To Make Profits And Pay No Tax - Case Study #1
It might feel as though large companies get all the tax reliefs, but any additional 'reliefs' mainly arise from owning a global brand.
So what can many UK based companies do? Let's illustrate with a Case Study:
Imagine you're a consultancy business with a few staff. After receiving tax efficient investment funds under SEIS (not available to large companies) you purchased top quality computer equipment for £80k for your staff to use and spent £120k on research & development into groundbreaking consultancy software.
Your profit for last year was made up of:
Costs (£220,000) (£120k R&D + £100k salaries/other costs)
If you know the corporation tax rate is 20%, you might expect your company tax bill should be £32,000.
However, a few adjustments are required to know how much tax you should pay.
Depreciation £20,000 (Ignored for tax purposes)
AIA (£80,000) (Capital allowances which replace the Depreciation - 100% of the computer equipment cost)
R&D (£156,000) (Tax enhancement available to small businesses)
TAX LOSS (£56,000)
Your profit of £160,000 has become a tax loss of £56,000! You've become a tax avoider!
This and other tax avoidance is perfectly legal.