Small business tax relief can help to add thousands of pounds to your bottom line. When you own a small business, it’s often all hands on deck, with all of your efforts focused on the day-to-day running of your business. Because of this, matters such as small business tax relief can often be forgotten, but forego these tax breaks and you could be missing out on the opportunity to save your business thousands of pounds, making you more efficient and competitive.
With that in mind, we’ve compiled a list of the top tax breaks for SMEs that every small business should know about.
If your business employs staff which it pays through PAYE, Employment Allowance is worth up to £3000 off your employer’s Class 1 National Insurance bill per tax year. Employment Allowance reduces your National Insurance bill every time you run your payroll, either until the £3000 threshold is reached or the tax year ends, whichever comes first.
You can only claim against Class 1 National Insurance which you have paid, but you can still claim Employment Allowance even if your National Insurance bill amounts to less than £3000 per year.
Annual Investment Allowance (AIA)
Annual Investment Allowance (AIA) constitutes a part of your capital allowances and allows you to deduct the full value of a qualifying AIA item from your profits before tax, although you may need to pay the tax later were you to eventually sell the item.
The AIA amount has been temporarily increased to £1 million between 1st January 2019 and 31st December 2020, as part of the government’s plan to stimulate business investment and encourage businesses to invest in plant and machinery. Prior to this temporary increase, the AIA amount was £200,000.
Small Business Rates Relief
If your business property has a rateable value of less than £15,000, you should be able to claim Small Business Rates Relief, which operates on a sliding scale so that businesses with a rateable value of less than £12,000 would pay no business rates and those with a rateable value of £15,000 or above would not be entitled to any relief on their business rates. To put this into context, if your business property has a rateable value of £13,500 you would be entitled to 50% off your business rates bill.
You can only claim Small Business Rates Relief if you have one sole business property although if you acquire a second property, you would be able to keep your entitlement for 12 months.
SME R&D Tax Relief
R&D tax reliefis available to businesses which create or significantly work towards advances in science and technology, although these advances have to impact the overall field in which you are working within, not just your business, and they won’t be allowed if they are simply using a certain technology in your industry for the first time.
Of particular interest to small businesses is SME R&D Relief, which is applicable to businesses with fewer than 500 employees and a turnover of less than €100m or a balance sheet total under €86m. If you are eligible for this relief, you can deduct an extra 130% of your qualifying costs from your yearly profit as well as the normal 100% deduction. If your business is loss-making, you can claim a tax credit of up to 14.5% of your surrenderable loss. Your qualifying costs can include staff costs as well as consumable items, subcontractor costs and software fees but you can’t include capital expenditure or rent and rates.
Seed Enterprise Investment Schemes (SEIS)
Finally, whilst not a tax break as such, small businesses may also be able to benefit from SEIS, which is a form of venture capital scheme designed to draw investment into your business. If your business’s scheme is eligible, you could receive a maximum of £150,000 in investment. These schemes provide tax relief for your investors. However, both investors and the business need to meet certain HMRC criteria to benefit from the tax break and tax relief can be withdrawn if yours or your investors’ circumstances change in the future.
In order to be eligible to investment under SEIS, your business must be less than two years old, have fewer than 25 full-time employees and gross assets of less than £250,000. Due to the conditions set by HMRC to ensure that these schemes are tax compliant, it is wise to seek guidance from HMRC who have a special department to deal with venture capital schemes.
Tax Consultancy by Phebys Accountants
For advice on how your business can save on tax, contact Phebys Accountants on 01480 896267, or email firstname.lastname@example.org.