When it comes to starting a small business, it’s natural to focus most of your energies on the day-to-day organisation. It’s often an ‘all-hands-on-deck’ scenario, with everyone involved ensuring sales are being made, products are being developed and marketing is being carried out. All too often, things like finding out about business tax breaks get left behind.
However, it’s worth putting the effort in at the beginning of your venture to find out about the tax breaks you could be entitled to. If you don’t, you could be missing out on ways you can help your business be more competitive.
Business tax breaks for small and medium sized enterprises
There are various tax relief schemes on offer for small and medium sized enterprises (SMEs) in the UK. Some are specific to industries and others are potentially available for all small businesses.
If you meet the criteria set by HMRC then your small business could lower its tax bill significantly. Look at it as an easy way to boost efficiency and potentially profitability. And it just takes some research up front. Here’s a rundown of some of the tax breaks your business could be eligible for.
- Employment Allowance
If you employ people through PAYE, then employment allowance can give you up to £3,000 off your Class 1 National Insurance (NIC) bill every year. Until 5 April 2020, businesses can claim this reduction in NICs. However, the majority of contractors and freelancers who pay Class 2 and 4 NICs aren’t eligible.
Businesses that are eligible can use up to the £3,000 limit each tax year. For example, a business with one member of staff earning £22,000 can claim the full amount (1,873.49) of NIC as it’s within the allowance. It’s £3,000 per business, not per employee.
After 6 April 2020, the allowance will only be available for small businesses, and those with an Employer NIC bill in excess of £100,000 won’t be able to claim it.
- Annual Investment Allowance (AIA)
The AIA is a form of tax credit for the purchase of equipment needed for your business. It allows you to deduct the total amount of an item that qualifies for AIA from your company profits before tax. If you later sell the item in question, you may have to pay tax then.
It can be claimed on most machinery and plant assets and does include some fixtures and features of buildings. It can also apply to alterations you make in order to install machinery but can’t be claimed for repairs. You can’t claim it for cars or anything given to your business, nor on any items you owned before you started your business.
The AIA threshold has been increased to £1 million on a temporary basis since 1 January 2019. This will cease on 31 December 2020 and was introduced by the Government to try and stimulate investment in business. Before this temporary increase, the amount stood at £200,000.
- Small Business Rates Relief (SBR)
If the property you run your business from has a rateable value of £15,000 or less, you should claim Small Business Rates Relief. This is on a sliding scale and means that businesses with a rateable value of less than £12,000 pay zero business rates. Those with a rateable value of more than £15,000 are not entitled to business rate relief. This is only available to business owners who have one property, but if you buy a second you can keep the entitlement to this tax credit for 12 months.
- SME research and development (R&D) tax relief
R&D tax relief is for businesses that create or contribute to scientific and technological advances. These advances must impact the field the business works within in a wider sense than just on the business itself. HMRC’s criteria for eligibility is relatively strict, so bear this in mind when applying.
The SME R&D relief scheme is available for businesses that employ fewer than 500 people, turnover less than €100m, or have a balance sheet total of less than €86m. Companies eligible for this can deduct 130% of the qualifying costs from annual profit in addition to the usual 100% deduction.
For businesses that are loss-making, tax credit of up to 14.5% of the loss is available. Qualifying costs can include employee costs, software fees, consumable items and subcontractor costs, but not rent, rates or capital expenditure.
- SEIS – Seed Enterprise Investment Schemes (SEIS)
This isn’t a straight-forward tax break but is a potential benefit for small businesses. SEIS is a venture capital scheme that could help you get investment. If you’re eligible, you could get up to a £150,000 worth of investment. The scheme gives investors tax relief, and you must both meet criteria set by HMRC to qualify.
To be eligible, businesses must be no older than two years, employ 25 people full time and have gross assets of no more than £250,000.
James Turner, Managing Director of Turner Little Limited: “Not every small business or SME will be eligible to claim all of these tax breaks. However, if your business is eligible for any of them, they are very much worth applying for. They could make a significant impact on your company’s profitability.”
“Always do your research and check whether your business meets the criteria set for these tax breaks. While it may seem like more work at the outset of your business, the benefits could be extremely worthwhile. The SME sector is vast and very competitive, and any assistance to improve efficiency and profitability should be seized by business owners.”
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.