Employers could be missing out on much-needed cash if they don't take advantage of key tax breaks
Many small business employers are missing a trick when it comes to tax breaks. "It's unfortunate that some small firms are putting themselves at a disadvantage by failing to use the tax breaks available to them," says Robert Grant, head of accounting at Crunch Accounting. "It often means that their competitors can surge ahead of them simply by being more savvy."
There are many tax breaks that employers could benefit from, he says. "To start with, there's the Employment Allowance which could reduce a company's National Insurance bill by £5,000 a year if they have employees. Then there's the lower rate of Corporation Tax available to companies who have profited from patented inventions (using Patent Box relief)."
And there are more tax break opportunities, he says. "Employers also have the ability to claim for petty cash expenses, the flat rate VAT scheme and zero employer National Insurance contributions for employees under 21."
Some tax breaks are overlooked, suggests Barnard, including Research and Development tax relief and tax credits. These can help some limited companies reduce their Corporation Tax bills. "It's really worth seeking advice on whether your business is eligible," he says. "Your project must seek to advance current knowledge or capability in science or technology."
In short, it pays to know your rights when it comes to tax reliefs. "It's hugely important and beneficial for businesses to make sure they're aware of the potential tax breaks available to them" says Barnard. "I'd advise speaking to a professional before incurring any large costs."
Here are details of some of the main tax reliefs available to businesses:
Business rate reliefs
The Government has come up with lots of ways for small firms to reduce their business rate bill. For example, if you have one property and its rateable value is less than £15,000, then you are entitled to Business Rate Relief. And you'll get 100% relief for properties with a rateable value of £12,000 or less. You may even be able to get rate relief if you have more than one property depending on the rateable values. There are also special rate relief arrangements for businesses in rural areas and enterprise zones.
The best way to find out what you could be eligible for is to contact your local council.
You could get up to £5,000 a year off your National Insurance bill if you're an employer. You can claim Employment Allowance if you're a business or charity paying employers' Class 1 National Insurance. The allowance will reduce your employers' (secondary) Class 1 NI each time you run your payroll until the £5,000 has gone or the tax year ends (whichever is sooner).
Annual Investment Allowance
You can deduct the full value of an item that qualifies for annual investment allowance (AIA) - including most plant and machinery - from your profits before tax. However, if you sell the item after claiming AIA you may have to pay tax. You can't claim AIA on cars but you can claim writing down allowances instead. AIA has changed on a regular basis so it's worth keeping a close eye on budget statements. The AIA limit is normally £200,000 but has been temporarily increased to £1 million until January 2023.
If you spend more than the AIA on qualifying assets, or purchase business vehicles, you can claim capital allowances. You can deduct a percentage each year of the value of the item from your profits before you pay tax.
Increased capital allowances are available for new purchases made by companies between 1 April 2021 and 31 March 2023.
You can’t normally claim capital allowances for buildings, but the Structures and Buildings Allowance (SBA) allows a deduction from profits at an annual rate of 3% (2022/23) calculated on the original construction expenditure for new, non-residential structures and buildings.
R&D tax relief
If your firm invests in research and development you could reduce your company's corporation tax bill. There is a specific scheme for SMEs and the tax relief on allowable R&D costs is 230%. This means that for every £100 of qualifying costs, your company could reduce your corporation taxable profits by an additional £130 on top of the £100 spent. And, if your company makes a loss, you can choose to receive R&D tax credits instead of carrying forward a loss – which means HMRC pays you a cash sum.
The Patent Box scheme allows innovative companies to apply a lower rate of corporation tax (10%) to profits earned from its patented inventions. You can only benefit from the Patent Box if your company is liable to Corporation Tax and makes a profit from exploiting patented inventions. Your company must also own or exclusively license-in the patents and must have undertaken qualifying development on them.