There are a variety of ways for small businesses to reduce their taxes depending which industry they are in and what products or services they are providing, and applying for the right one is key to getting approved for any of them. Tide has highlighted eight tax breaks specifically for small to medium-sized enterprises (SMEs), as well as what the requirements are to be eligible for them.
Small business rate relief
This tax break was introduced in 2005 to ease the burden on small businesses which have their own premises and are paying business council rates.
A business is eligible for this break if it has one property with a value of less than £15,000 or one main property as well as additional properties.
The latter must first prove that the additional properties are less than £2,900 in value and the value of all properties combined is less than £20,000.
If a business’s premises is over these thresholds but still less than £51,000 they may be entitled to a partial relief which will be calculated using the business multiplier, currently at 49.1p in comparison to the standard 50.4p multiplier.
The value of the property will change the relief amount a business is eligible for, which can be between 100 percent and zero percent.
If a business already receives mandatory rural rate relief or mandatory charitable relief it will not be eligible for this tax break.
Donations made in the UK by individuals are tax-free and if a charity or club is registered as a Gift Aid they have a claim to the basic tax rate from HMRC, meaning they make an extra 25p for every £1 someone donates without costing the donor.
If a business owner pays income tax above the 20 percent basic rate then they can claim the difference between the tax they’ve paid on donations to Gift Aids and what the charity actually got by completing a self assessment tax return.
Allowable business expenses
This is applicable to all small and medium-sized businesses so long as they incur running costs or require money to keep competitive in the market.
The expenses that can be compensated for are: office costs which typically don’t last for more than two years such as stationery, software and power. Travel costs are also covered by this tax break, including fuel, breakdown cover, hotel fees and insurance.
Uniforms or protective gear, staff expenses, insurance premiums and costs to keep the business’s finances in check are also covered by the tax break.
Keeping a comprehensive expenses policy for one’s team and regularly updating a travel log is one of the easiest ways to oversee business costs without infringing on them.
However, it’s important to note that if a business uses the £1,000 tax-free trading allowance or the owner has to personally pay for business costs then they might not be eligible.
Annual investment allowance
It’s similar to the allowable expenses, but investment allowance provides tax relief on larger purchasers that will be used for years to come.
This includes most machinery, fixtures and building alterations costing up to a certain amount, however the exact limit changes every year so thorough research is vital to having a successful claim.
In order to be eligible the item must have been bought and cannot be leased, and items bought by the owner before starting a business are also exempt.
A company’s National Insurance bill can be cut by up to £4,000. This reduces Class 1 National Insurance Contributions (NIC) each time a payroll is run so long as the full amount of Employer NICs are within the £4,000 threshold.
Businesses are eligible if employee Class 1 NI liabilities are less than £100,000 in the latest tax year and if they employee care or support workers.
Research and development tax relief
This break was put in place to promote R&D investment in small businesses, so companies can now deduct an extra 130 percent of their qualifying costs.
If a business spends £1,000 on R&D taxable profits can be reduced by an additional £1,300. If a business makes a loss then claiming this can see them gain a tax credit of 14.5 percent in the form of a cash sum.
The patent box scheme
This scheme is meant to compensate companies with forward-thinking innovative approaches with a corporate tax break.
A business needs to retain and commercialise existing UK and European patents or developing new patented products.
Meeting this criteria can see a reduced rate of 10 percent on all profits from the patents involved but in order to be eligible a business must be liable to corporation tax and own or be doing qualified development on the patents.
Creative industries tax reliefs
This relief is exclusively for businesses in the creative industry, with each sub-section receiving different tax breaks and eligibility depending on their output.
Qualifying for the break can see businesses reducing their corporation tax by up to 100 percent.
This break includes different reductions and qualifying criteria for film, high-end television, animation, video games, children’s TV, theatre, orchestra, museums and galleries.