Spring has sprung, and with it comes the beginning of the new tax year. While it may not be an obvious moment for celebration for many SMEs, it is a chance to start afresh with business tax matters, and vow to exploit the many tax breaks available to small and medium companies. Too many business owners are unaware of existing tax incentives that could significantly help their operation. So, ensure you get all you can from the tax office in the 12 months ahead. There’s almost certainly some relief available that could enable you to better run – and even grow – your enterprise.
Research and development
Companies engaging in innovation – manufacturers in particular – should be taking advantage of the generous research and development (R&D) tax breaks available. These incentives were originally designed with SMEs in mind, with the Chancellor George Osborne confirming his commitment to increase the R&D allowance for SMEs from 225 per cent to 230 per cent. HMRC have increased their rate of processing claims from 2016, after a two year publicity campaign was also announced to raise awareness of R&D tax credits for smaller firms.
The PR push is overdue, as far too few small businesses currently know about or take advantage of R&D tax relief.
- Just under 4,000 R&D tax credit claims were made by manufacturing SMEs in 2012-13, according to HMRC, and some of these claims will be made by the same companies – in other words, few enterprises are benefitting from the scheme.
- Just five per cent of SMEs have used R&D tax credits, accountant KPMG estimates.
In fact, firms could be claiming relief on a host of things, from staff costs, use of freelancers and sub-contractors, and even on materials and utility expenses. If your company is innovating, improving or developing a process, product or service, chances are you’re eligible for the tax help. HMRC has further information about R&D credits, and an online calculator to help entrepreneurs tot up how much tax relief they can claim.
There is also a special tax regime for intellectual property revenues called the Patent Box. This allows companies that make any profits on a patented product to apply a lower rate of corporation tax of 10 per cent to these earnings.
Employment and National Insurance
A big boost for many small firms has been the Government’s vow to slash their National Insurance (NI) costs, with companies and charities eligible since 2014 for a £2,000 Employment Allowance to reduce their NI bill. It’s estimated that 1.25 million firms will benefit, and about 450,000 of smaller employers are paying no NI contributions at all.
For companies that suffer from skills gaps, there’s tax help to take on new, young talent. Small companies could get a £1,500 grant to employ an apprentice under another Government scheme, the apprenticeship grant for employers. This is available to businesses with fewer than 50 members of staff that haven’t taken on an apprentice in the last 12 months, and that then hire a 16 to 24-year old. It’s possible to get up to five such grants per business.
Firms taking on an unemployed youngster aged between 18 and 24 could also get a £2,275 sum under the Youth Contract. About one in five employers has said they created a vacancy because of this wage incentive, a Government study found.
Tax relief on business investment
If companies are keen to raise funds, but have decided not to go down the route of a bank loan, or other types of borrowing, such as short-term business loans, they could seek out an external investor. Again, the Government provides a sweetener that could attract the right type of funder. The Seed Enterprise Investment Scheme (SEIS) was launched in 2012 to encourage investment in early stage companies. It gives people tax breaks of up to 50 per cent on their investments in these innovative firms, and, for business owners, SEIS can prove a strong incentive for a person to invest in your enterprise.
Capital allowances are a great place to start as relief could be claimed on some plant and machinery used by SMES. HMRC has details of items that are eligible to be claimed on its website. Firms may also be able to claim annual investment allowance of up to 100 per cent back on expenditure of up to £500,000 on plant and machinery, though this limit drops back down to £25,000 at the beginning of next year – so act now. There are also enhanced capital allowances for some green and energy-efficient items. The Carbon Trust has further detail on its website.
Business rates bail-out
Changes to business rates has allowed small firms with single property a rateable value up to £6,000 to claim back 100 per cent relief, and those with a rateable value between £6,000 and £12,000 to benefit from a tapering relief. The discount on business rates for shops, pubs, cafes, and restaurants with a rateable value up to £50,000 is also currently at £1500.
As well as benefiting from all of these tax giveaways, business owners would also be wise to look at what grants may be available in their local area. The Local Enterprise Network is a web of 39 local enterprise partnerships in England that have European money to dispense to businesses as grants, funding for rural companies, and a variety of other awards. Get in touch with your local branch to see if you’re eligible for any of this growth capital.
Whatever you do, make an effort to tap into all the funds to which you’re entitled. Running a business is hard enough, so don’t be proud, and take all the help you can get.