Setting up a small business can be exciting. So much rides on it – your hopes, your financial security and future opportunities. Yet all the costs to make it happen and then keep it running efficiently can seem daunting. That’s why you should consider whether your small business qualifies for tax breaks that allow you to save money.
HB Accountants is experienced in advising small businesses about their tax breaks. Here are our 7 top tips for you to consider:
1. Save with Research and Development (R&D) tax relief
R&D is a Corporation Tax relief that may reduce your business’ tax bill if your company is liable for Corporation Tax. If your business is running at a loss, rather than making profit, you might still be entitled to R&D tax credits. This tax break applies to small businesses (with less than 500 full-time employees and sales of under €100m or balance sheet assets less than €86m) that have projects that meet the Government’s R&D definition.
Even if you don’t obviously think that your company qualifies for this tax break, it’s worth looking into since it doesn’t just apply to science or IT businesses but any business that is innovating. We can advise you on R&D tax breaks and help you make a claim. It could be worth a deduction of an extra 130% of qualifying costs from annual profit, or if the company is loss-making a tax credit worth up to 14.5% of the qualifying loss.
2. Claim Employment Allowance to reduce NICs
Since 2014, if you have more than one employee you can claim the Employment Allowance to reduce the amount of Class I National Insurance Contributions (NICs) you have to pay each year. The current allowance is £3,000 per year, which means that employers don’t have to pay Employers NICs until the amount they owe exceeds £3,000. This works by you claiming the allowance each month via your payroll process, as NIC liabilities arise, until the allowance is used. Accountancy practices like HB Accountants, can run your payroll for you, including claiming this allowance.
3. Register for Value Added Tax to reclaim VAT
By law, any business turning over more than £85,000 a year needs to be VAT-registered and if they don’t comply, they can be subject to a fine. You can also become registered for VAT even if your turnover is below this threshold. Once your business is VAT-registered, you must charge VAT on the sales you make, and you can reclaim the VAT you pay on products and services that your business buys. You can back-date VAT reclaims up to 4 years which could potentially give you a lump sum to invest back into your small business. Having a VAT registration number can also enhance the credibility of your business with customers and suppliers. Although registering for VAT can seem complex, we can help you to get everything in order.
4. Make use of your Annual Investment Allowance
If your business deals with plant and machinery, you might be entitled to use your Annual Investment Allowance (AIA). You could claim up to 100% tax relief on any qualifying plant and machinery assets in the first year of purchase, that are bought outright – not leased. The criteria for these assets are quite rigorous, and exclude cars, but it’s worthwhile checking with us to see if your business qualifies.
This is a 100% upfront allowance that applies to qualifying expenditure up to a specified annual limit or cap. If a business spends beyond the annual limit, the extra qualifying expenditure can attract relief under the normal capital allowances regime. Currently, businesses can benefit from a temporary increase in the AIA limit to £1,000,000 from 1 January 2019 for 2 years.
5. Offset tax with the Enhanced Capital Allowance
Designed to encourage a lower carbon footprint, the Enhanced Capital Allowance (ECA) gives businesses tax breaks when they invest in eligible energy-saving equipment and technologies. The scheme allows you to offset 100% of the purchase cost against your profit provided that the equipment is in its first year of purchase and qualifies as an energy saving technology. Individuals and partnerships can use the allowance against income tax, while companies can use the relief against corporation tax.
6. Raise funds with Seed and Enterprise Investment Schemes
Newly established businesses that need extra capital can benefit from the Seed Enterprise Investment Scheme (SEIS) which offers tax incentives to potential investors who buy shares in the business. If your company has been trading for less than two years and owns less than £200,000 in assets, you could raise up to £150,000 through this scheme. Investors gain initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax exemption for any gains on the value of SEIS shares. For investors to claim this relief the business which is gaining the investment must first be approved for the scheme.
The Enterprise Investment Scheme (EIS) is similar to SEIS but it’s for businesses that have been trading for more than two years and up to seven. It enables investors to reclaim 30% tax relief on investments up to £1,000,000 in any tax year, although they must keep their shares for a minimum of three years. As always there’s strict criteria that we can help you to navigate, and you’ll need the approval from HMRC before you use this scheme to incentivise investors.
A social gathering at work can be an ideal time for team members to get to know each other better but it can be expensive. That’s why it pays to know about Trivial Benefits and tax relief on the annual office party.
You can take your employees out to lunch to celebrate a special occasion and provided you meet certain criteria, the amount spent can count as a Trivial Benefit which isn’t taxable and doesn’t have to be declared. The cost per person must be £50 or less and it mustn’t be a reward for work done or a working lunch. If the cost exceeds £50 per head, then the whole event becomes taxable. You can host several lunches each year, since for employees there is no limit on the number of Trivial Benefits they receive. For directors of a ‘close’ limited company (where there are less than 5 directors who are also all shareholders) then there is a limit of £300 in Trivial Benefits in a tax year.
Whilst there is no specific allowance for hosting an office Christmas party or annual summer BBQ you may also be surprised to know that any limited company can claim tax relief on this cost. This benefit extends to a plus one for each employee and includes food, drink, travel and a hotel stay. Again, certain rules apply. The cost must be under £150 per head including VAT, with all employees being invited to the function. Please note that the £150 cost is a limit for the tax year not an allowance, so if costs exceed this the whole party is taxable. If you’d like to be certain whether your team lunches count as Trivial Benefits or if your Christmas party qualifies for tax relief, chat to the HB team and we can advise you.
Tax help for small businesses
Whether you’re setting up a new small business or have already established your enterprise, there are plenty of tax breaks worth researching to free up or claim back vital funds. If you’d like help with this, email me, that’s Amy Armitage, at Amy@hbaccountants.co.uk or give me a call on 01992 444466 and I can advise you.