Tax reliefs and allowances your business could benefit from

There has been an array of headlines over the years about how enormous corporations seem to make sales worth billions of pounds yet don’t pay much, if any, corporation tax.

The reality, however, is small and medium sized businesses have various specific, legal tax saving avenues available to them. These could potentially save you thousands of pounds. However, you may not have the time or resources needed to explore these reliefs and allowances. The trick is to know what they are, when they apply, and how to use them.

Having a team of accountants and tax advisors available can ensure you explore and apply all legal avenues of tax saving. This process won’t happen overnight. It takes planning and analysis to understand what a business qualifies for. By working closely with the right accountant, you can ensure that your business is operating as tax efficiently as possible.

Here, Ross Andrews, Partner at Wellers, one of the UK’s leading accountancy firms, examines some of the tax reliefs worth exploring to see if you could save on your tax bill.

Research & Development (R&D) Tax Relief

Any business that is working to achieve advances in knowledge or capabilities, specifically in a field of science or technology, may qualify for R&D tax reliefs. The UK Government created these reliefs because it recognises that businesses working to resolve scientific or technological uncertainties are key to furthering British business on a global scale.

The relief itself works by reducing a business’s corporation tax liability. For businesses that are loss making, which some in their early stages can be, they receive a cash refund instead.

In practice, this means that an SME making a net profit of £600,000 after spending £450,000 on research, can potentially reduce its taxable profit to £15,000, thereby saving £111,000 in tax. To benefit, a business must submit a claim to HMRC.

The Patent Box

The Patent Box is a quite complicated tax relief in comparison to R&D tax reliefs. It was introduced to encourage companies to commercialise intellectual property.

It only applies to products that are either entirely patented or contain a patented item. Companies can reduce their rate of corporation tax to 10% for profits accumulated from the sale of products which qualify. However, for patents to be accepted, they must have been granted by the UK Intellectual Property Office or the European Patent Office.

It can be quite a complex process to identify how much of a business’ income is relevant to a patent. To understand what does and doesn’t qualify, it’s important that you work closely with your accountant to establish robust accounting systems so as to prevent submitting incorrect claims.

Loss reliefs

Loss relief works whereby you get tax relief when you offset your losses against other profits in your business in the same accounting period. You also have the option to carry the loss back, but if you do not then it is carried forward to another accounting period.

Creative Industries Tax Reliefs

There are a range of reliefs applicable to businesses in the creative field that work in a manner very similar to R&D tax relief. The reliefs apply to:

  • Film production
  • Television production
  • Video game development
  • Theatre productions
  • Orchestral productions

Where your business is profitable then this works by identifying the relevant expenditure and reducing corporation tax on the related profits. If your business is loss making then you may be able to surrender the loss and convert all, or some, of it into a payable tax credit.

Conclusion

Tax reliefs could save you thousands on your tax bill. If you haven’t yet explored these reliefs, there is no time like the present. They exist to further British businesses and encourage continued investment in our economy. They are there to be used to save your bottom line and allow you to reinvest for future growth.

You can download the Wellers guide to SME tax planning for further information.

Last updated: 6th June, 2021

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