Tax exemptions and reliefs – are you making the most of what’s available to you?

As a startup your tax liability is relatively straightforward but as your business changes into a limited company or reaches the VAT threshold, your tax liabilities increase in amount and reporting obligations.

Effective corporate tax planning will look to to minimise your corporate tax exposure and relieve the administrative burden of compliance with current tax legislation.

It is difficult to suggest exactly which tax reliefs might be available to your business without speaking with you directly but here is an overview of types of relief that might be available:

Capital Allowances

Whenever a business purchases equipment (such as plant, computers, office chairs etc.) capital allowances exist as a corporation tax relief. A “super deduction” of 130% of money spent on equipment is coming to an end from April 2023, so you may wish to consider purchasing equipment before that date. Specific advice may be required from your accountant.

Research & Development (R&D)

Corporate tax relief is available for those companies which are seeking to research or develop an advance in their field of work through innovative projects in science and technology. The project has to clearly explain the uncertainty they had to overcome and how they tried to do it and that it would otherwise not be easily worked out by a professional in the field. Even if the project was unsuccessful, a valid claim can still be made.

There are two types of R&D relief available depending on the size of your business. If you are an SME with less than 500 staff and a turnover of less than 100 million euros, you would apply for the SME R&D relief scheme. SME R&D relief allows companies to:

• deduct an extra 130% of the qualifying costs from the yearly profit, as well as the normal 100% deduction, to make a total 230% deduction*
• claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss*

If your company is larger you would apply for the Research and Development Expenditure Credit (RDEC). This is a tax credit which as of 1 April 2020 is 13% of your qualifying R&D expenditure. You can find full details of each scheme here.

At the time of writing there is a consultation on simplifying the UK’s R&D tax relief system into a single scheme (which you can access here).

N.B. tax reliefs are due to change April 2023

Reclaiming VAT

If your business is VAT registered, you can claim VAT on valid business expenses through your VAT return. Record keeping is imperative here. Any items which also have personal use (your mobile phone for example) you can claim the portion which is business use.

If you sell both taxable and exempt goods then your business will be considered ‘partially exempt’ and there are additional rules around what you can claim. It is always best to speak with your accountant to get advice specific to your business.

Sector specific

During the pandemic, lots of sector specific support was put in place for those industries most impacted by the lockdown measures. Outside of that support there are various sector specific reliefs including business rates relief and creative industry tax credits for those in media and production. It is worth researching what sector specific support is available to you.

At the time of writing we have the Energy Bill Relief Scheme which is providing a discount on energy usage to help business owners with their utility costs. The discount is automatically applied. It comes to an end on 31 March 2023.

Business Asset Disposal Relief (previously known as Entrepreneurs Relief)

This relief is relevant to individuals operating a business not a company (sole traders or partnerships). It can reduce the rate of Capital Gains Tax (CGT) the individual pays on the sale (disposal) of assets. Rather than pay tax at 20% on all gains it is reduced to 10% for the first £1M of gains.

To qualify the individual must have owned the business for at least 2 years. If the asset is shares or securities there are other criteria to be considered so it is best to get advice from your accountant if this is a relief you would like to use.

Remember the basics

Good tax planning is the best foundation for paying the right amount of tax for your business. That advice should come from the tax advisor managing your tax affairs. They can take a holistic view of all your tax liabilities, helping you to plan ahead and conduct your affairs in a tax efficient way. Also remember to claim for all your tax-deductible business expenses!

Tax planning for forward thinking businesses

As qualified tax advisers based in Reading, our objective is to work closely with you to ensure you pay the minimum tax required by law. We help to navigate the complexity and give you clarity. We offer a FREE, no obligation consultation, tax review and services quote. Call us on 0118 997 7100 or email enquiries@woodwhiteaccountants.co.uk