By Tony Mills, Director, Online Tax Rebates
Many SMEs continue to lose out on vital income from tax entitlements because they lack an understanding of what’s available, with nearly half (46 percent) of SME owners claiming to have ‘very poor’ knowledge of how the system works.
Cash flow can be make or break for a small business, so any savings which can be made on operating costs should be welcomed with open arms. However, it’s easy to get bogged down with the everyday priorities of running a business and let claiming for tax entitlements slip down the ever-growing to-do list.
Yes, HMRC does take a slice of your well-earned profits but it’s also there to give you a helping hand to grow your business to the next stage of growth.
Reading through often jargon-heavy literature on tax entitlements can be a difficult and time-consuming task, so here’s a simple list of 5 tax incentives you really should consider checking if you qualify for and if so, make a claim.
#1 Attract investment
Raising small amounts of capital can be difficult for any small business, that’s why the Government launched the Seed Enterprise Investment Scheme (SEIS) in April 2012 to make SMEs more attractive to individual investors.
In 2015-16, 2,225 companies received investment through the Seed Enterprise Investment Scheme (SEIS) and £170 million of funds were raised.
SEIS offers investors attractive tax relief on Income Tax, Inheritance Tax and Capital Gains Tax and can benefit small, growth-orientated businesses who may find access to finance difficult but want to take a step up to the next level.
There are certain criteria which need to be met: you must have fewer than 25 employees, have less than £200,000 in gross assets and you can raise a maximum investment of £150,000 over three years. Visit HMRC’s guidance page to find out if your eligible and how to apply.
#2 Treat your staff
Love them or loathe them, an annual staff event like a summer BBQ or Christmas party is a highly-valued office perk. However, the associated cost to a small business can be a significant sum, meaning many owners may be put off from holding one.
With Christmas parties alone costing UK businesses almost £1 billion a year, it’s worth noting if you’re a limited company you don’t need to pay tax or National Insurance on the associated costs.
If your event is annual, costs no more than £150 a head (including VAT) and all employees are invited, HMRC will provide you with a tax-free subsidy for food, drink, travel or accommodation. This benefit also covers plus ones, so each employee can invite their spouse or a family member.
#3 Keep things uniform
If a uniform is important for your brand image or your company issues protective clothing to keep your staff safe on the job, both you and your employees could be due a tax deduction.
Employers must keep accounting records for uniform purchases. Having a permanent logo on your uniform makes your work clothes a uniform for tax purposes. This is applicable whether your uniform is a full outfit or a simple polo shirt or T-shirt. Clipping a detachable logo badge to otherwise ordinary clothes does not however, make those clothes a uniform.
Employees will need to claim individually for a rebate on the cost of maintenance. Claims can be backdated to the last four tax years and received as a single payment, while any future claims will be paid in wages.
Employees can quickly find out how much they’re owed by entering a few simple pieces of information into this online calculator which will provide an estimate and send out the relevant forms.
#4 Register for VAT
Every business must register for VAT if their taxable turnover is more than £85,000. As many SMEs don’t meet this, small business owners are missing out on the benefits of VAT exemption.
Yes, VAT is another thing to think about, but it can give your cash flow a much-needed boost. You must register voluntarily – unless you provide goods or services which are exempt – to receive the business benefits such as boosting your profile, making business dealings easier and avoiding financial penalties if you do creep over the VAT threshold.
The simple option is the Flat Rate Scheme, making VAT payable as a single fixed percentage of gross turnover. If you want a more accurate figure, keep all invoices which are raised and paid to complete accurate tax returns every quarter.
If you have any doubts you should talk to your accountant who will explain the requirements in greater detail and help with specific queries or even complete the VAT return on your behalf.
#5 Be rewarded for innovation
More businesses are claiming research and development tax credits every year and the average claim value for SMEs is now £61,514. However, the Treasury still owes SMEs more than £84bn in unclaimed R&D tax relief due to low take up, so make sure you’re not missing out.
R&D tax credits were first introduced by the Government in 2000 to reward UK companies who were developing innovative products and services. This can be in the form of a cash payment and/or a lower corporation tax bill.
This tax credits scheme isn’t confined to a laboratory, it’s purposefully broad; everything from a new piece of software, an innovative cheese-making method to a boundary-pushing restaurant dish is covered.
Once you’ve received a nice financial boost, it’s a good idea to re-invest your reward into further product or service innovation. That way you’ll continue to benefit from R&D tax credits for years to come and keep one step ahead of the competition.