There are many legal types of tax relief available for all UK registered companies, no matter their size, that could save you thousands on your annual tax bill. You just need to know what they are, when they apply, and how to use them.
Despite the Government’s plans to increase corporation tax rates in the UK from 19% to 25% from April 2023, Britain will still have the lowest rate of corporation tax in the G7. However, even with these low tax rates we still often see outlandish headlines of huge global conglomerates shirking their tax responsibilities.
Unfortunately, this isn’t a process that can happen overnight as it involves extensive planning to understand what a business qualifies for. But by working closely with an accountant and tax advisor well versed in corporate tax planning, you can ensure that your business is operating as tax-efficiently as possible.
In this exclusive article, Ross Andrews, Partner at Wellers, one of the UK’s leading accountancy firms, discusses how small, limited companies can potentially benefit from these four types of Corporation Tax relief:
Research & Development (R&D) Tax Relief
Businesses that are working to achieve advancements in knowledge or capabilities, particularly in the fields of science or technology, may qualify for R&D tax reliefs. These were created by the Government to recognise businesses working to resolve scientific or technological uncertainties as being key to furthering British business on the global stage.
The relief itself works by reducing your corporation tax liability. For businesses that are loss making, which some are in the early stages, you receive a cash refund instead.
In practice, this means that an SME making a net profit of £300,000 after spending £225,000 on research, can reduce its taxable profit to £7,500, thereby saving £55,500 in tax. To benefit, a business must submit a claim to HMRC.
The Super Deduction
In this year’s Budget, the Chancellor announced a new initiative called ‘the Super Deduction’. Here, businesses allocating funds for investment can claim a 130 percent tax write off on taxable expenditure relating to qualifying plant or machinery.
So, as an example, if you spend £100,000 on qualifying assets, this can generate £24,700 off your tax bill.
The Patent Box
The Patent Box is a fairly complex tax relief in comparison to R&D tax reliefs and the Super Deduction.
It was introduced to encourage organisations to commercialise intellectual property and only applies to products that are either entirely patented or contain a patented item. Businesses 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 particular patent. To identify 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 work by offsetting losses against other gains or profits of a business within the same accounting period. You can also choose to carry the loss back, if you do not it will be carried forward to another accounting period.
Businesses cannot afford to overlook corporation tax reliefs. Not only do they save on your bottom line, but the money saved can be reinvested in the business to further it in the long run. Of course, this isn’t a process that can happen overnight, however having a great accountant on side will help establish the protocols and systems to ensure your business is running as tax efficiently as possible.
For further advice and tips, download the Wellers guide to SME tax planning.