Five commonly overlooked tax breaks that will boost your business

When you're focused on growing your business, dealing with tax can often feel like a distraction and an extra burden.

Five commonly overlooked tax breaks that will boost your business

It's tempting to do the bare minimum to meet your tax obligations, and forget about it until the next deadline comes around.

But if you're doing this, you could be missing out on valuable tax breaks that could save your business money, and help you invest more into your growth and development.

Tax breaks, in the form of reliefs, allowances or other incentives, are often made available by the Government to encourage activity that's helpful to the UK economy.

Other tax policies are designed to tackle wider issues such as climate change, or simply to make things fairer for business owners by allowing them to deduct the cost of expenses from their profits before tax.

Here are five of the most overlooked tax breaks available in 2020/21, and how your business can benefit from them.

1. R&D tax credits

Research and development (R&D) reliefs are available to businesses that carry out innovative work in science and technology.

This relief applies much more broadly than many people think – as HMRC puts it, it's “not just for 'white coat' scientific research, but also for 'brown coat' development work in design and engineering”.

As long as your work seeks to overcome uncertainty and solve problems that couldn't easily be worked out by another professional in the field, you may have a qualifying claim for these tax credits.

You'll also need to prove that you looked for an advance in the overall field, not just for your business or sector alone.

There are two kinds of R&D relief – one for small and medium-sized businesses, and another for larger companies.

SME R&D relief can be claimed by businesses with less than 500 staff, and a turnover of under €100 million or a balance sheet total under €86 million.

It allows qualifying businesses to deduct an extra 130% of their qualifying costs from their yearly profit. This works on top of the usual 100% deduction, making a total deduction of 230%.

If the company is loss-making, they can also claim a tax credit worth up to 14.5% of the surrenderable loss.

The research and development expenditure credit, meanwhile, is available to large companies, or SMEs that have been subcontracted for R&D work.

Companies that qualify can claim a credit worth 13% of their qualifying R&D expenditure from 1 April 2020 (12% from 1 January 2018 to 31 March 2020, and 11% up to 31 December 2017).

2. Creative industry tax reliefs

There are eight different creative industry tax reliefs, covering films, animation, high-end television, children's television, video games, theatre, orchestras, and museums and galleries.

These allow qualifying companies to increase their amount of allowable expenditure, and by doing so decrease the amount of corporation tax they have to pay.

Each relief has its own terms. For example, in order to qualify for film industry relief, a film has to pass a 'cultural test' that proves it is a British production, and receive certification from the British Film Institute.

3. The annual investment allowance

The annual investment allowance (AIA) has temporarily increased from £200,000 to £1 million between 1 January 2019 and 31 December 2020, giving business owners an opportunity to make big investments while minimising their tax bill.

The AIA allows you to deduct the full cost of qualifying plant and machinery from your profits before tax.

Plant and machinery includes items that you keep to use in your business, as well as certain 'integral features' and fixtures in properties.

It does not include items that you lease, or that are used solely for business entertainment.

4. Benefits of electric cars

There are several tax advantages designed to encourage the use of electric cars, particularly if they're used for business purposes.

If you buy a new, unused electric car to use in your business, it will qualify for an enhanced capital allowance. This means you can deduct the full cost from your company's profits before tax.

And if you install an electric charging point for your car, this will also qualify for a 100% first-year allowance.

There are also advantages if you provide an electric car to an employee for private use, compared to higher-emission options.

In the 2020/21 tax year, zero and low-emission company cars will have a 0% benefit-in-kind tax percentage, offering savings for both you and your employee.

This is set to rise to 1% in 2021/22, and 2% in 2022/23.

5. Home office expenses

Many people have had to get used to working from home since the outbreak of COVID-19, and that comes with its own challenges.

We've shared our three top tips for working from home effectively, but the other side of it is the extra cost that comes with using more energy in your home throughout the week.

Fortunately, the costs of working from home can be deducted as an allowable business expense.

This works differently depending on whether you're a sole trader or running a limited company, and to further complicate matters, some of the rules have been adjusted as a result of the coronavirus lockdown.

Please get in touch on 0208 861 7575 or email be-ambitious@lawrencegrant.co.uk to find out if you can claim any of these valuable reliefs.

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Lawrence Grant

We are a member firm of the Institute of Chartered Accountants of England & Wales (ICAEW). Registered to carry on audit work in the UK and Ireland. Our Insurer is Prosure Solutions (per W R Berkley , and IGI), 34 Lime St, London EC3M 7AT (worldwide, excluding North America). Also an independent member of GGI, a multidisciplinary worldwide association of accountants, tax consultants & lawyers.