What are Corporation Tax allowances?
Allowances are costs that are deductible for Corporate Tax purposes. These allowances will only qualify if they are used for legitimate business purposes, but is not all encompassing. Some common allowances are: phone and broadband bills for the office, travel fees, uniform, salaries etc. These expenses must be clearly documented in your accounting records to qualify for Corporate Tax allowance, so it is worth investing isn a suitable process to track these. The list of allowable expenses is specific and there are ones which do not qualify, for example: legal costs that relate to buying new property, depreciation or client entertainment costs.
What does this look like in reality? For example, your business makes £1 million in revenue a year that breaks down into £900k in costs and £100k profit. After reviewing the list of allowable expenses, you realise that only £800k of those costs are allowable. This means that 800k of allowable costs will be tax-free. However, the £100k in non-allowable expenses and £100k of profits will incur a Corporation Tax liability at 19%.