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What business tax relief are you entitled to?

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Understanding what taxes you need to pay as a small business is essential. But while it’s important to pay your tax bills in full and by the relevant deadlines, many small businesses can also benefit from tax relief in certain circumstances.

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What is tax relief?

Tax relief, or a tax break, is a method of reducing the amount of tax you need to pay as a business. To do this, you need to consider what your business spends money on or invests in. 

Making the most of tax reliefs doesn’t mean avoiding tax altogether, but if you’re eligible, it can help you save money and reduce your tax liability. 

These unsecured and secured loans could help you grow your business, cover running costs or even fund a new company.

Do I qualify for small business tax relief? 

To qualify for the different tax reliefs, you need to meet specific criteria; each type of tax relief has its own eligibility requirements. Some of these tax breaks will only suit businesses in particular industries, for example, while others depend on whether you’re a sole trader or limited company. 

If you’re unsure which small business tax reliefs you can claim, it’s best to speak to an independent financial adviser first. 

Eight small business tax reliefs

Below is a list of eight tax breaks you might be able to claim as a small business. 

1. Small Business Rate Relief

If you’re a business with your own premises, you’re likely to be charged a business rate by your local council. However, you may be eligible for the small business rate relief (SBRR) if:

  • Your property’s rateable value is less than £15,000

  • Your business only uses one property – although it might still be possible to get SBRR if you use more

How much SBRR you get will depend on your property’s rateable value

  • You won’t need to pay business rates on a property with a rateable value of £12,000 or less if that’s the only property you use

  • If your property has a rateable value of £12,001 to £15,9000, the relief rate is tapered from 100% to 0%

It’s best to contact your local council to apply for this type of tax relief

2. Annual Investment Allowance

Annual Investment Allowance (AIA) enables you to deduct ‘plant and machinery’ costs from your profit figure when you pay tax. You can only claim up to a certain amount, which changes fairly regularly, so it’s best to check each year.   

According to gov.uk, ‘plant and machinery’ includes:

  • Items that you keep to use in your business, including cars

  • Costs of demolishing plant and machinery assets

  • Parts of a building considered integral, such as lifts, air conditioning and lighting systems

  • Some fixtures, such as fitted kitchens and staff bathrooms

  • Alterations to a building to install plant and machinery assets (does not include repairs)

You need to claim this type of tax relief on your self-assessment or company tax return.

3. Charity donations

If you’re a limited company and donate time or money to charities, you can deduct these costs from your profits and reduce your corporation tax bill. Charity donations include gifts of money, equipment and shares, as well as employees volunteering their time during working hours. 

There are different rules for sole traders and partnerships. 

4. Employment Allowance

If your company employs staff, you might be able to reduce your National Insurance (NI) bill by up to £5,000 a year. You’ll pay less employers’ Class 1 NI each time you run your payroll until you’ve reached the £5,000 limit or the tax year ends, whichever is soonest. 

You can claim Employment Allowance if you’re a business or charity and your employers’ Class 1 NI liabilities were less than £100,000 in the previous tax year. It’s also possible to claim if you employ a care or support worker. 

To benefit from this tax break, you need to use your own payroll software and select ‘Yes’ in the ‘Employment Allowance indicated’ field when you next send an Employment Payment Summary to HMRC. Or you can download and use HMRC’s Basic PAYE tools, which lets you carry out specific payroll tasks.  

5. Research and Development (R&D) tax relief

If your business works on innovative projects in science or technology and you are a limited company, you might be able to claim R&D reliefs. 

The project doesn’t need to be successful for you to qualify, but your business needs to be researching or developing something that can be considered an advance in your field. 

The relief allows small- and medium-sized enterprises (SMEs) to:

  • Deduct an extra 86% of their qualifying costs from their annual profit, in addition to the standard 100% deduction, giving a total deduction of 186%

  • Claim a payable tax credit if the company has claimed relief and made a loss

To qualify, you need fewer than 500 staff and a turnover of less than 100 million euros or a balance sheet total of under 86 million euros. 

6. Creative industries tax relief

There’s a group of eight corporation tax reliefs that enable qualifying companies to increase their allowable expenditure and potentially reduce the amount of corporation tax due. 

Your company can claim if it pays corporation tax and is directly involved in the production and development of:

  • Films

  • High-end television

  • Children’s television

  • Animation for television

  • Video games

  • Theatrical productions

  • Orchestral concerts

  • Museum or gallery exhibitions

You may be able to claim these types of tax relief on your company tax return. 

7. Seed Enterprise Investment Scheme (SEIS)

SEIS is one of the four venture capital schemes offered in the UK. It provides tax relief to investors who buy new shares in your company. It can help your company raise a maximum of £250,000 when starting to trade. 

You can use the scheme if your company carries out a new qualifying trade, is established in the UK and is not trading on a recognised stock exchange when issuing shares. To apply, you have to complete a compliance statement and send it to HMRC. Relevant forms can be found on the GOV.UK website.  

8. The Patent Box scheme

The Patent Box allows companies to apply a lower corporation tax rate (10%) to profits earned from their patented inventions. 

You can only use the scheme if your company:

  • Is liable for corporation tax

  • Makes a profit from exploiting patented inventions

  • Owns or has exclusively licensed the patents

  • Has undertaken qualifying development on the patents

On top of this, your patent-related income must come from:

  • Selling patented products

  • Licensing patented rights

  • Selling patented rights

  • Compensation or damages from the infringement of rights you own

You can learn more about what qualifies and see examples of calculations on the GOV.UK website.

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