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5 Ways Small Businesses Can Catch a Tax Break

Posted on October 18, 2021

Small businesses are subject to numerous different types of taxes that you are required to pay, depending on what the business does and how successful it is. There are a lot of ways small businesses can catch a tax break, through utilizing UK Government tax relief schemes, but it can be difficult to decipher which ones will be most beneficial for you. 

We have put together a list of 5 beneficial tax relief schemes for you to use, therefore helping you to free up some cash and catch a well-deserved tax break.

  • SME R&D Tax Credits

R&D Tax Credits is a Government scheme that aims to boost innovation across multiple industries. A common misconception about the scheme is that they are just for businesses that are highly scientific, or of an extremely innovative nature, but this is not true. The scheme makes it possible for your business to reduce their Corporation Tax Bill or to rec

The scheme is available for any businesses that create or work towards advances in scientific or technological projects. The project that you are working on does not have to be successful to make you eligible for the relief, it just has to meet certain criteria for what HMRC sees as Research & Development.

Who Is Eligible For R&D Tax Credits?

  • Businesses with employees
  • If you employ a care or support worker
  • Businesses that pay Class 1 National Insurance
  • Businesses with Class 1 National Insurance Liabilities of less than £100,000 in the previous tax year
  • Charities
  • Community amateur sports clubs

The relief is available for every sector, as long as the business is trying to overcome a difficulty or looking for an advance in science and technology that could not easily be worked out by a professional within the field. It is just one of the ways small businesses can catch a tax break while boosting the UK’s economy and assisting the Government’s plans to turn the UK into a scientific superpower.

How can I apply?

You can make a claim for relief up to 2 years after the end of the accounting period, you will need to calculate your enhanced expenditure, and support this by giving a summary that explains your project (technical report), a breakdown of qualifying costs, the total amount that you are claiming and the start and end dates of the accounting period relating to this claim. R&D Tax Credits can be difficult to claim due to the specialism needed within the claim, this is why it is always optimal to claim via a specialist such as Green Jellyfish, as you will have a higher chance of claiming more, fewer chances of penalties, but also a maximized claim. 

To find out more go to: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief

  • Employment Allowance (NIC Relief)

If your business has employees that you pay through PAYE, you may be entitled to claim Employment Allowance every time you run your payroll. You will be entitled to pay less Employers’ Class 1 National Insurance until you reach the £4,000 threshold or the end of the tax year, whichever is sooner. It is important to note that you will need to claim every year, and also that your £4,000 threshold is the total allowable relief for each business, and not for every single employee.

You can only claim this type of relief against Class 1 National Insurance which you have paid, but you will still be entitled to claim it, even if your National Insurance Bill is less than £4,000. 

Who Is Eligible For Employment Allowance (NIC)?

  • Businesses with employees
  • If you employ a care or support worker
  • Businesses that pay Class 1 National Insurance
  • Businesses with Class 1 National Insurance Liabilities of less than £100,000 in the previous tax year
  • Charities
  • Community amateur sports clubs

If you are part of a group of charities, or companies (connected companies) then the total employers’ Class 1 National Insurance liabilities must not exceed £100,000, and only one company within that group can claim the allowance. If you have more than one payroll, your Class 1 National Insurance liabilities must also not exceed £100,000. 

Who Isn’t Eligible For Employment Allowance (NIC)?

  • Your business only has 1 employee who is paid above the Class 1 National Insurance Secondary Threshold
  • The employee is also a director of the company who is paid over the Secondary Threshold of £157 a week.
  • Self-employed contractors and freelancers who can only pay Class 2 and Class 4 National Insurance, and not class 1.
  • The employee included in your claim is someone whose earnings are within the AR35 ‘off-payroll working rules, such as an individual that provides services to a client through an intermediary such as a limited company (PSC), a partnership, or an individual through a non-corporate relationship, but they would be classed as an employee if contracted directly.
  • You won’t be entitled to NIC if you employ a household, domestic or personal worker unless it’s for care and support work.
  • Businesses that do more than half of their work for the public sector (such as NHS).

How can I apply?

You can apply by downloading HMRC’s Basic PAYE Tools and by using your own payroll software, entering YES in the Employment Allowance Indicator box next time you send an Employment Payment Summary (EPS) to HMRC. Consulting with a specialist such as your Accountant is always beneficial, as they can give you more guidance about the allowance and the benefits you may reap from it.

To find out more go to: https://www.gov.uk/claim-employment-allowance

  • Small Business Rate Relief

Small businesses may be eligible to claim Small Business Rate Relief, which is available at 100% for ratepayers that occupy single properties with an RV of less than £12,000, with relief reducing on a sliding scale to 0% at RV £15,000. 

The relief can give business owners a reduction of their business rates (non-domestic rates, or NNDR) charged with rateable values at less than £51,000. Ratepayers will be eligible to claim back rates that they have already paid, as far back as 1st April 2010. 

Who is eligible for Small Business Rate Relief?

  • Ratepayers that have only one property in England of RV less than £15,000
  • Ratepayers with one main property and additional properties with RV’s of less than £2,900 with the total RV not surpassing £20,000. 

Who is not eligible for Small Business Rate Relief?

  • Empty properties do not qualify
  • Ratepayers who receive mandatory charitable rate relief
  • Ratepayers who receive mandatory rural rate relief
  • Ratepayers who receive mandatory former agricultural premises relief

How do I apply?

Small Business Rate Relief is not automatically applied to your account, instead, you must complete a small business rate relief form if you think that you may qualify. You will need to contact your local council to apply for the relief. If something changes that could affect your eligibility, then you must notify HMRC straight away. 

To find out more go to: https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief

  • Seed Enterprise Investment Schemes (SEIS)

The SEIS scheme is designed to help your business to raise money when it starts to trade. This is done by offering tax reliefs to individual investors that buy shares in your company, therefore encouraging investments into early-stage companies. Every new business needs capital to develop and grow, and the UK has developed many schemes to assist small businesses with emerging into their desired markets. 

There are many risks when it comes to investing in early-stage businesses, but it can also offer large rewards, which is why many sophisticated, high-level investors can be easily put off. The SEIS scheme therefore incentivizes the investments, by offering ways small businesses can catch a tax break, and also their investors. More than 40,000 companies have benefitted from this scheme and received more than £2bn worth of investment due to the scheme. 

Who is eligible for SEIS Relief?

  • A UK-registered business
  • A business that operates a qualifying trade
  • A business with no more than 25 employees
  • A business that has been trading for less than 2 years
  • A fully independent business
  • Must be unquoted before beginning SEIS (not listed on any major stock exchange)

Who is not eligible for SEIS Relief?

  • Businesses with gross assets over £200,000 when the shares are issued
  • Businesses that are members of a partnership
  • You can not use the investment to buy shares unless they are in a qualifying 90% subsidiary that uses the money for qualifying business activity.

How Do I Apply?

You can claim SEIS Tax Relief when you complete your tax return either by post or online, or you can complete a claim form and send it to your HMRC tax office, this should only be done if you are wanting to backdate your claim against the previous year, if you pay tax via PAYE and want to receive the relief through an adjustment of your tax code or if you want to claim capital gains reinvestment relief as well as income tax relief. 

To find out more go to: https://www.gov.uk/guidance/venture-capital-schemes-apply-to-use-the-seed-enterprise-investment-scheme 

  • Annual Investment Allowance

Annual Investment Allowance is a type of Capital Allowance and it was introduced in 2007. It is a form of tax relief that is available for British businesses and is just one of the ways small businesses can catch a tax break through the purchase of business equipment, primary tools and machinery. AIA makes it possible for businesses to write off 100% of qualifying expenditure up to a set limit of £500,000 against taxable profits for the same period. 

The scheme facilitates faster tax relief as the full expenditure can be claimed in the year of purchase, rather than over numerous years. The majority of UK businesses have qualifying expenditure of less than £500,000, so the scheme makes it possible for them to just write this off, also without the need to write down allowance calculations every year.

It allows businesses to deduct the total amount of qualifying expenditure up to a certain limit from taxable profits in a given tax year. It was designed to encourage businesses to invest in plant and machinery, to stimulate economic growth. It can be claimed by sole proprietors, corporations, and partnerships, and most assets purchased for business purposes qualify for Annual Investment Allowance. 

Who Is Eligible For Annual Investment Allowance?

  • Limited UK businesses
  • Individual partners within Partnerships
  • Sole traders

What expenditure does it cover?

  • Machines
  • Tools
  • Vans & lorries
  • Diggers
  • Office equipment (air conditioning, fitted kitchens, bathroom fittings etc)
  • Building fixtures (integral features)
  • Computers and software
  • Machines that are used for providing entertainment such as arcade game machines. 

It is important to note that cars are not eligible to claim for.

How Do I Apply?

You can claim for AIA on your tax return in the period that you bought the item, you will need to disclaim the date that you bought the item, when you signed the contract and when the payment is due. 

To find out more go to: https://www.gov.uk/capital-allowances/annual-investment-allowance 

Green Jellyfish are specialists in R&D Tax Credits. If you want to find out more, click here.