In today’s dynamic business landscape, understanding and maximising tax relief opportunities can significantly impact a business’s financial health.
In this article, we aim to highlight the intricacies of tax relief and how businesses, from startups to established enterprises, can make the most of it.
What does tax relief mean for businesses?
Tax relief is the process of reducing the amount of tax a business needs to pay to the government. There are several ways a business can get tax relief, including tax on income, tax rebates on business expenses, pension relief, or working from home tax relief.
Why is claiming tax relief important?
Claiming tax relief is a big part of financial management for any business. It serves as a key tool to reduce overall tax liability and improve cashflow. This practice allows businesses to deduct certain expenses and costs from their gross income, effectively lowering the amount of taxable income and, consequently, the amount of tax owed to the government.
By maximising the use of available tax reliefs, businesses can reinvest the savings into operations, fostering growth, innovations, and competitiveness in the marketplace.
Tax relief measures are often introduced by the government as part of fiscal policies aimed at encouraging businesses to undertake activities that contribute to economic growth, such as investing in new tech or creating new job opportunities.
Tax reliefs are especially beneficial for small and medium-sized enterprises (SMEs) which might not have the same financial resilience as larger corporations.
What types of tax relief can a business claim?
Corporation Tax Reliefs
This relief allows companies to deduct certain costs and expenditures from their taxable profits, reducing the amount of Corporation Tax they owe. Examples include costs of goods, salaries, and financial charges.
Annual Investment Allowance (AIA)
AIA enables businesses to deduct the full value of qualifying items of plant and machinery up to a certain limit from their profits before tax. This is intended to encourage investment in business assets.
Research and Development (R&D) Tax Credits
Aimed at encouraging innovation, this relief allows businesses that invest in developing new products, processes, or services, or enhancing existing ones, to claim a deduction from their taxable profits or a cash payment from HMRC.
Employment Allowance
This relief reduces the National Insurance contributions (NICs) that businesses have to pay for their employees, up to a certain threshold. It’s designed to encourage businesses to hire more staff and increase wages.
Creative Industry Tax Reliefs
These are a group of reliefs that allow qualifying companies in the creative sector, such as film, television, animation, video games, and theatre, to claim a larger deduction or, in some cases, a payable tax credit when calculating their taxable profits.
Business Rates Relief
Various reliefs exist to reduce the business rates that companies have to pay on their premises. These include small business rate relief, rural rate relief, and relief for retail, hospitality, and leisure businesses.
Capital Allowances
These allow businesses to write off the cost of certain capital assets against taxable income. They include the Annual Investment Allowance, First Year Allowances, and Writing Down Allowances for assets that don’t qualify for AIA.
Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS)
These schemes offer tax reliefs to individual investors who buy new shares in your company, encouraging investment in small and early-stage businesses.
Patent Box
This tax relief enables companies to apply a lower Corporation Tax rate to profits earned from patented inventions and certain other innovations, encouraging the development and exploitation of patents.
VAT Relief
Certain goods and services are exempt from VAT or eligible for reduced rates, and businesses can also reclaim VAT on goods and services purchased for business use.
How to claim tax relief back?
Claiming back tax relief is an essential aspect of managing finances for businesses. Below is a simplified guide to help businesses navigate this process effectively.
Step 1: Understand Eligible Expenses
Firstly, businesses need to understand which expenses are eligible for tax relief. Generally, these are costs directly related to running the business, such as office supplies, business travel, staff salaries, and financial services. It’s important to keep detailed records and receipts of all such expenses throughout the fiscal year.
Step 2: Use the Right Tax Forms
Depending on the structure of your business (sole proprietorship, partnership, corporation, etc.), the forms you’ll need to fill out to claim tax relief will vary. For most businesses, these forms are available on your country’s tax authority website, along with instructions for completing them. Ensure you’re using the latest version of each form to comply with current tax laws.
Step 3: Apply for Tax Credits and Deductions
In addition to expenses, explore what tax credits and deductions you may be eligible for. These can significantly reduce your taxable income. Examples include credits for green energy initiatives, employment of certain demographics, or research and development activities. It’s worth consulting a tax professional to ensure you’re maximizing your claims.
Step 4: File Your Tax Return
Complete and file your tax return by the deadline, including all necessary documentation for your expenses, credits, and deductions. Electronic filing is often faster and allows for quicker refunds. If you owe money, ensure it is paid by the due date to avoid penalties.
Step 5: Keep Records
Maintain records of all filed tax returns and related documents for a period defined by your tax authority (often around 7 years). This is crucial for any future audits or queries regarding your claims.
Remember, tax laws vary by country and can change, so it’s advisable to consult with a tax professional or accountant to ensure you’re claiming all possible reliefs and complying with the latest regulations.
Tax relief for small businesses
Small are afforded several tax relief options designed to support their growth and ease their financial burdens. One of the most significant of these is the Small Business Rate Relief (SBRR), which can considerably reduce the business rates—a tax on property used for business purposes—that small businesses must pay.
What is small business rate relief (SBRR)?
The SBRR is available to businesses that only use one property, and the property’s rateable value must be less than £15,000. For businesses with a property that has a rateable value of £12,000 or less, there is no business rates to pay. The relief decreases on a sliding scale for properties with a rateable value between £12,001 and £15,000.
This relief is crucial for small business owners as it can significantly lower their overhead costs, allowing more resources to be allocated to other areas of the business such as development, marketing, and expansion.
Why choose CloudAccountant.co.uk?
Hiring expert accountants like us is an invaluable decision, particularly when it comes to navigating the complex world of taxes. Here at CloudAccountant.co.uk, we possess a thorough understanding of tax laws and regulations, which can significantly benefit your business by ensuring that you capitalise on all the tax relief and incentives you are legally entitled to.
This will not only optimise your business’s strategy, but also safeguard against potential legal issues related to tax compliance.
Get in touch!
Need more information on tax relief and UK tax deductions? If you’d like some free, impartial advice on how we can proactively help your business, you can contact us by emailing info@cloudaccountant.co.uk, calling us on 01625 546232, or simply filling in the enquiry form below.