Digital Tax

Everything you need to know about tax rebates for small businesses

Studies show that almost half of all small businesses in the UK are unaware of the tax relief and rebates that they can get from the government. That means that if you are a small business, there is a 50% chance that you could be missing out on some much-needed tax relief in some form or other.

The research, carried out by insurer Direct Line, found that there could be as many as 3.5 million small businesses in the UK that are missing out due to a lack of understanding about the tax allowances they could be claiming. That’s a huge number.

Rebates and reliefs are there for a number of reasons. Primarily, they make it easier for small businesses to go about their day to day functions without the pressure of full taxation. These allowances remove some of the burden at a time when growing the business can be incredibly hard and risky. However, they are also there to try and encourage investments and greater risk taking in business. While tax is a necessary evil of running any business, the government also knows that it needs to promote investment, get behind research and development and help grow the UK economy, with beneficial results for everyone.

That said, the idea of rebates and reliefs only works if the businesses to which they apply are aware of them and take full advantage.

So, in order for you to be more aware about what you could be entitled to under UK tax law, we’ve provided some information below about some of the common allowances that are often overlooked.

Annual investment allowance

This allowance means you can deduct the full value of any qualifying item from your profits before they are taxed. This covers capital expenditure you make on machinery and industrial equipment but it does not include cars and parts. This allowance can be made on any purchase up the value of £200,000.

Enhanced capital allowance

This allows you to claim tax relief on any machinery and plant goods that reduces your carbon footprint. This was introduced in order to try and encourage businesses to work in a more environmentally friendly way. You can claim back 100% of the value of the item in the first year.

Employment allowance

This is an allowance of £3,000 per year for any business that makes NI contributions for employees. You can make the claims for more than one PAYE staff member but cannot surpass the liability.

Enterprise investment scheme

This encourages investments in new business by allowing you to claim back 30% of any investment against your tax bill. However, the business in which you are investing must qualify as an EIS business before you can claim the relief. Any profits you make from this investment are also exempt from capital gains and inheritance tax. The amount you can invest is capped at £1 million per year.

Seed enterprise investment scheme

Like the EIS above, this was set up to help investment in high risk start-ups, with again capital gains and inheritance tax not being payable on any relevant profits. However, unlike the EIS, this allows investors to claim 50% of paid tax.

Research and development

If your business undertakes any research and development work, then these credit rates account for a third of relevant expenses. This can help small businesses to grow, yet many do not realise that they are eligible for this kind of relief. This relief is aimed at helping small businesses to innovate and break new ground. Many business owners fear the costs of R and D and hold back from doing it, but with relief available, it could be more affordable than you think.

Renovation of premises

The business renovation allowance gives SMEs a tax break if they are renovating a property that has been empty for more than a year and was previously used for another purpose. You may be eligible for up to 100% tax incentives on any such projects, so it’s a great rebate for any business looking to repurpose a commercial space.

In addition to the above tax breaks, there are rebates available when you spend money decorating the office environment. You will need to make a business case for the expenditure, but if you can, this money will come back to you in the form of tax relief.

Staff parties

The cost of staff parties and Christmas parties can also be tax deductible. As long as the cost of your shindig is kept under £150 per person, this deduction can be used at one or more parties every year. It might not be a huge saving, depending on the size of your company, but every little helps.

Business tax can be very complicated and confusing. And when it comes time to do your taxes at the end of the financial year, it can be all too easy to just do them in the simplest way possible, pay your bill and get back to running your business. Wading through the shoeboxes stuffed full of receipts and trying to work out what counts as an acceptable tax allowance can be a cause of real headaches. That’s why it is always recommended to get an accountant to help you.

An accountant will have a much better idea of what rebates and reliefs you may be entitled to as a small business. The above, and other reliefs can all help to take the strain off. By getting relief on investments, research and development and employment allowances, you can give your business the push it needs to grow in the right direction. You need to remember that these reliefs and incentives were put in place for a reason and you are perfectly entitled to them if you meet the criteria. If you are not claiming what you’re due, you will be paying more each year in tax than you need to, and that’s not great business sense.

Robert Marjoram

About Robert Marjoram

What is your role at Together?
I deal with clients, new business and the development and strategy of the business. I recruit the staff and I suppose you could say set the agenda and vision.

What do you enjoy most in your day to day role?
Dealing with clients. There's such a variety of characters and each business can be completely different even within the same business sector. The principles for accounts, and tax are the same for all businesses. Its the client advice, how they want us to work with and for them that's at the core of everything we do.

What do you find most rewarding in your role?
Its great to take on a new client, start-up or current business, and see them go from good to great. I don't take credit for that because its down to the client but I do see my role as a enabling the client to get the most from their business.

And finally what do you do when your not at Together?
I spend time with my family and have keen interest in Norwich City and other sports. A new interest is walking, visiting the Lakes on the encouragement of friends and next year I am walking The Dolomite's in Northern Italy with my son Alex