When you run your own small business, every penny counts so it is crucial to make sure that any outgoings are kept to the essentials, including the amount of tax you pay.
But are you aware that the Government offers many tax incentives for businesses from sole traders right up to giant global organisations? Owners of small businesses often discover that many tax incentives are available on things they had not even thought were eligible.
In this article we look at some of the more common ones.
At home and on the road
If you are self-employed and work from home, you may be able to claim tax relief on some of your household expenses, such as utilities, repairs and insurance. It may also be possible to claim for the cost of travel and accommodation when you are working away from home, so you should try to keep adequate business records, such as a log of business journeys. The TaxAssist Accountants app includes a free mileage tracker to help you log these trips.
Keeping your accounts up to date is also important as HM Revenue & Customs may request to see them. Therefore, if you don’t already have one, you should seriously consider using a software package to help with your record-keeping. We work with various solutions that might suit your needs.
As your businesses grows, you may find yourself having to employ staff to keep up with demand. When this happens, you can use the Employment Allowance to decrease the amount of National Insurance you pay each year by up to £3,000.
The allowance reduces your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3,000 has gone or the tax year ends – whichever comes first. Sometimes, this could mean you don’t have to pay any National Insurance at all.
Research and Development
Are you the owner of a business that researches or develops new processes, products or services in science and technology or improves on existing ones? Or are you planning to start a business based on the results of research and development (R&D) in a particular field? If so, you could claim tax relief on this work using small and medium-sized enterprises (SME) R&D Relief. You can deduct an additional 130% of your qualifying costs from your yearly profit, as well as the normal 100% deduction, to make an overall 230% deduction.
If a business falls more into the ‘medium’ than ‘small’ part of SME, an ‘above the line’ credit exists for large company R&D expenditure. This is known as the R&D Expenditure Credit (RDEC) scheme and the credit has increased from 11% to 12% for expenditure incurred on or after 1st January 2018. The credit is fully payable, net of tax, to companies with no corporation tax liability
SMEs not eligible for SME R&D tax credit are usually receiving some other form of state aid (usually a grant) for the same project. However, they may be able to claim under the large company RDEC scheme. An SME could also be entitled to the large company RDEC for certain work that has been subcontracted to it.
Annual Investment Allowance
The Annual Investment Allowance (AIA) is currently £200,000 but will increase to £1 million from January 2019. The AIA allows you to claim 100% tax relief on any qualifying plant and machinery in the year they are purchased.
The AIA applies to businesses of any size and most business structures, but there are provisions to prevent multiple claims. Businesses can allocate their AIA however they wish and it’s quite acceptable for them to set their allowance against expenditure qualifying for a lower rate of allowances (such as integral features).
As the rules around AIA are strict, it is advisable to consult with your accountant to ensure your claims meet the criteria.
Enhanced Capital Allowances
The Government is keen to be seen encouraging businesses to invest in high-performance energy efficient equipment and does so via the Energy Technology List (ETL) and Enhanced Capital Allowances (ECA).
Products on the ETL deliver an objectively high standard of energy efficiency (which is defined as performing within the top 25% of all similar equipment available in the UK market).
In addition to the AIA, a 100% first year allowance is also available on new energy saving or environmentally friendly equipment. Where companies (only) have losses arising from ECAs, they may select how much they wish to carry forward and how much they wish to surrender for a cash payment (tax credit is payable at 19% but subject to limits).
A full list of eligible ‘green’ equipment can be found here.
We can help
These are just some examples of the tax relief that may be available to your business but remember to seek professional advice before acting.
One of the key factors in tax planning is ensuring you consider the tax liabilities ahead in advance. Your local TaxAssist Accountant would be happy to discuss your plans in more detail and outline the possible allowances available to you.
By Jo Nockels FCCA
Last updated November 2018
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.