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Tax relief for SMEs in the UK

by Brett Walker | Aug 31, 2016
  • There are many advantages to starting a business in the UK. As a small business owner, you will be eligible for several tax breaks and favourable reliefs. Let’s take a look at some of these in a bit more detail.

    The UK has traditionally been a business-friendly country. From the relative ease of setting up a small company to the incentive schemes that are available to SMEs, the UK is very much “open for business”.

    The UK is currently in a long term cycle of declining Corporation Tax and, to add to this, there are also several categories of tax relief available to business owners. Below is an overview of both Corporation Tax and the various categories of tax relief available to SMEs in the UK.

    Corporation Tax in the UK

    Corporation Tax is the tax payable on the profits your business makes in a financial year. Compared to other developed countries, the UK has a relatively low rate of tax on company profits.

    Your profits From 1 April 2015 From 1 April 2014 From 1 April 2013
    £300,000 or less 20% 20% 20%
    Above £300,000 20% 21% 23%

    As you can see, tax for the upper threshold has been declining steadily since April 2013. The now-ex-Chancellor of the Exchequer, George Osborne, laid out a plan to further reduce Corporation Tax to 17% by 2020.

    Categories of tax relief for SMEs

    In order to minimise your tax payments, you can subtract the costs of running your business before the profits are taxed. SMEs are able to apply for tax relief based on:

    • Capital allowances
    • Research and Development Relief
    • Disincorporation Relief
    • Patent-related Relief
    • Reliefs for creative industries
    • Marginal Relief

    Capital allowances

    Generally speaking, these are the kinds of assets that you keep and use in the running of your business. These could be plant, factory, construction or restaurant equipment. The allowance also extends to vehicles used expressly for business purposes.

    Research and Development Relief

    SMEs are afforded special relief for research and development. You may apply for this relief if your company employs less than 500 employees and has a turnover of under €100 million and a balance sheet under €86 million. These limits include any linked partnership or companies holding shares in your business.

    On April 1 2015, HMRC raised the rates of relief. The tax relief allowable on research and development costs is 230%. Applying for this relief can get complicated, so it’s always best to speak to a professional to ensure you qualify.

    Disincorporation Relief

    If you decide to disincorporate your SME and continue running the business as, for example, a sole proprietor, you could also claim the transfer of your incorporated business’ assets without incurring Corporation Tax charges.

    There are several eligibility requirements that are contingent on the circumstances of each individual business. You should also note that shareholders of the corporation may still be liable for other taxes like Income tax and Capital Gains Tax when the disincorporated company’s assets are transferred.

    Patent-related relief

    If your SME earns profits off of patented inventions, you can request to reduce the level of Corporation Tax applied to those profits. This relief lowers the tax rate to 10% and applies only to profits from 1 April 2013.

    This relief is possible through HMRC’s “Patent Box”. Your company will have to be the exclusive holder of the patent and must have undertaken what HMRC refers to as “qualifying development”.

    Creative industries tax reliefs

    There are six types of relief that you can apply for if you are in what HMRC defines as a creative business. These reliefs allow businesses to claim payable tax credits, surrender losses and claim larger deductions. Companies involved with animation programmes, video games, high-end television programmes and specific films may be eligible to apply for these reliefs.

    Companies will have to pass an HMRC “cultural test” as well as have products that are certified as British in order to have access to creative industries tax reliefs. This is all handled by the British Film Institute.

    Here are the specific reliefs you can apply for:

    • Animation Tax Relief
    • Video Games Tax Relief
    • Film Tax Relief
    • Children’s Television Tax Relief
    • Theatre Tax Relief
    • High-end Television Tax Relief

    Marginal Relief

    This is not a widely applicable relief, as it extends only to companies who made profits between £300,000 - £1.5 million either before 1 April 2015 or if those profits arose from oil rights or oil extraction in the UK or UK continental shelf.

    Our SME accounting team can help you get the appropriate tax relief on your profits. Give us a call on + 44 (0) 20 7759 7553 or send us an email and we’ll set up a meeting to discuss your options.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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