How business owners, no matter their company size, can benefit from tax reliefs.
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Huge global conglomerates often make the headlines with scandalous claims of underhand tax planning. We’ve all seen them. Whether it’s tech giants, coffee connoisseurs, or retail big wigs, you don’t have to look far.
However, the truth is, there are tax reliefs available for all UK companies and they could save you thousands. The trick is to know what they are, when they apply, and how to use them.
This does take some planning, so it isn’t a process you can employ overnight. However, you can ensure your business is operating as tax efficiently as possible by working closely with your accountant. Here is a breakdown of some of the reliefs that potentially could be available to you.
The SEIS is unique compared to the other types of business tax relief included in this list because it only applies to businesses that are in the very early stages of their lifecycle, under two years old.
The idea is to encourage investors to help early-stage businesses raise funding by reducing their risk. Under the scheme, an investor can fund up to £100,000 in a tax year and the Government will provide upfront income tax relief up to 50%.
The EIS is similar but it allows for larger funding rounds for more established businesses.
Under the scheme, investors can back a qualifying company up to £1m in a tax year and the Government will provide upfront income tax relief of 30%.
Both schemes offer huge benefits for businesses and investors. On one hand, investors can reduce their risk of investing, whilst on the other, a business can raise valuable funds without the additional costs of servicing bank loans.
The business will further potentially benefit from the investor’s knowledge, skill, experience, and network of contacts. Something they might not get with a bank loan.
Research & Development (R&D) Tax Relief
Businesses that are working to achieve advances in knowledge or capabilities, specifically in a field of science or technology, may qualify for R&D tax reliefs.
These were specially created to help companies that are helping resolve scientific or technological uncertainties because the UK Government recognises them as a key area for furthering British business on a global scale.
The relief itself works by reducing a business’s corporation tax liability. For those businesses that are loss making, which some early-stage businesses could be, they can receive a cash refund instead.
In practice, this means than an SME making a net profit of £800,000 after spending £600,000 on research, can reduce its taxable profit to £20,000, thereby saving £148,000 in tax. To benefit, a business must submit a claim to HMRC.
The Patent Box
The Patent Box is a quite complicated tax relief. It was introduced to encourage companies to keep and commercialise intellectual property and only applies to products that are either patented in their entirety or contain a patented item.
For those products that qualify, companies can reduce their rate of corporation tax to 10% for profits accumulated from their sale. For patents to be accepted, they must have been granted by the UK Intellectual Property Office or the European Patent Office.
Due to the complexity of this tax relief, it can be easy to misinterpret how much of a business’ income is relevant to a patent. To identify what does and doesn’t qualify, make sure you work closely with your accountant to establish robust accounting systems.
Businesses could be missing out on tax savings worth thousands of pounds because they haven’t fully explored these tax reliefs.
They exist to further British business and encourage continued investment in our economy, so owner managers shouldn’t be discouraged by negative headlines.
They are there to be used to save your bottom line and allow you to reinvest in your business.
Ross Andrews is a partner at accountancy firm Wellers.