A guide to small business tax reliefs

Running a small business presents many challenges, and often it can seem that taxes are just another burden. It is therefore surprising that so many small businesses do not take advantage of the significant tax reliefs offered by HMRC.

These tax reliefs, often known as tax breaks or rebates, offer a reduction in your tax liability. These are often based on certain expenditure or investments being made in your business. They are often dependent on your industry or location, or whether your business is a limited company. 

In this guide we will cover some of the reliefs which are most likely to be available to your business and set out the different qualifying criteria.

Business rates reliefs

A number of reliefs are available to reduce the amount of business rates payable. These rates are charged by local councils on most businesses with non-domestic premises, such as shops, pubs, or factories. There are three main business rates reliefs available:

Small business rate relief 

Small business rate relief is available to businesses with:

  • One property with a rateable value below £15,000; or
  • Multiple properties with rateable values individually less than £2,900 and totalling less than £20,000

Where your business property is worth more than £12,001 but less than £15,000, the relief you get will be tapered from 100% to 0%. For example, a business property with a rateable value of £13,500 will receive a 50% reduction to their bill, but a property with a rateable value of £14,400 will only receive a 20% reduction.

If your property has a rateable value above those thresholds but below £51,000, relief may still be available. This is less generous and is calculated using the small business multiplier.

Rural rates relief

Rural rates relief is available to businesses in a rural area with a population below 3,000. You will not pay business rates if your business is in an eligible area and either:

  • Are the only village shop or post office, and have a rateable value of up to £8,500. 
  • Are the only public house or petrol station, with a rateable value of up to £12,500.

Charitable rate relief

Charitable rate relief is available to charities and community amateur sports clubs. This reduces the rates by up to 80% on properties used for charitable purposes. This write-off can be increased to 100% if the council approves ‘discretionary relief’.

Other

Additional business rates reliefs are available for companies starting up or relocating to an enterprise zone, such as the New Anglia enterprise zone, or for businesses in the retail, leisure and hospitality sectors. 

Unlike the other reliefs on this list, business rates are managed by local authorities. As such, if you wish to make a claim, you should get in touch with your local council. 

Employment Allowance

If you employ staff, the employment allowance will allow you to reduce your annual National Insurance liability by up to £5,000. Claiming this allowance will allow you to reduce the employer’s Class 1 National Insurance on each payroll until the end of the tax year, or until you reach the £5,000 threshold if earlier. 

You can claim this relief if your business

  • Has employees
  • Pays Class 1 employers’ National Insurance 
  • Had an employers’ Class 1 National Insurance liability below £100,000 in the prior tax year

You cannot claim this relief if you are the only director/employee of a limited company with no other employees or are a self-employed contractor only paying Classes 2 and 4 National Insurance. 

This relief can be claimed via your own payroll software or using HMRC’s Basic PAYE Tools.

Annual Investment Allowance

The Annual Investment Allowance (“AIA”) provides a 100% deduction for qualifying capital expenditure in calculating a business’ taxable profits. The AIA provides a 100% deduction in the year of acquisition instead of the standard writing down allowances at 18% or 6%. 

This allowance is available on most ‘plant and machinery’ items that you use in your business. It is not available on cars, items owned for other purposes prior to being used in your business, and items gifted to you or your business. 

The AIA is currently available up to a limit of £1,000,000 per accounting period. This is a temporary increase from £200,000 and is only available until 31 March 2023.

The Super Deduction – only for companies charged to corporation tax

The super deduction is a temporary measure which provides limited companies with a deduction against profits of 130% for capital expenditure on qualifying ‘main pool’ assets. This means that for every £100 of qualifying expenditure by a company, there will be a £130 deduction in calculating taxable profits. 

The ‘special rate allowance’ works similarly for qualifying capital expenditure on ‘special rate assets’ and provides a 50% deduction against profits, meaning that for every £100 of qualifying expenditure there will be a £50 deduction in calculating taxable profits. 

These allowances have no limits and can be claimed in addition to AIA. It is worth noting however, that the ‘special rate allowance’ is at a lower rate to the AIA, and so should only be considered where the AIA limit has been utilised by other special rate expenditure.   

You can claim this relief through your normal corporation tax computation and CT600 return.

Creative Industries Tax Reliefs – only for companies charged to corporation tax

The creative industries tax reliefs are a group of corporation tax reliefs which allow qualifying companies to claim a deduction from taxable profits. The conditions vary between specific reliefs, but they are available to many companies which are involved in the production of:

  • Theatre productions
  • Orchestra shows
  • Films
  • Animations
  • High-end TV
  • Children’s TV
  • Video games

There is an additional Museums and Galleries Exhibitions Tax reliefs which is only available to certain charities and local authorities, or companies owned by them. 

In addition to the actual 100% costs, these reliefs provide an additional deduction from profits at 25% of the qualifying UK expenditure, capped at 80% of the core expenditure of the production. 

All of these reliefs are broadly claimed in the same way through entry in a specific box on the CT600 tax return. These are specialist areas, and it is strongly recommended professional advice is sought on these matters. 

Theatre Tax Relief

To qualify for this creative industry relief, your company must be a theatrical production company which:

  • Puts on a live play, opera, ballet, or other dramatic work for the general public or educational purposes
  • At least 25% of the core expenditure is on goods or services from within the European Economic Area

Orchestra Tax Relief

To qualify for this relief, your company must put on a qualifying orchestral concert which:

  • Is performed by an orchestra, ensemble, or band which consists of at least 12 instrumentalists
  • Is not electronically amplified
  • Is performed live for the general public or for educational purposes
  • At least 25% of the core expenditure is on goods or services from within the European Economic Area

Film Tax Relief

To qualify for this relief, your company must be producing a film which:

  • Is certified as British by the British Film Institute, or qualifies as an official co-production
  • Is intended for theatrical release
  • Incurs at least 10% of its core costs in the UK

Animation Tax Relief

To qualify for this relief, your company must produce an animated programme which:

  • Is certified as British by the British Film Institute
  • Is intended for broadcast to the general public – including streaming online
  • Has at least 51% of its core expenditure on animation, and 10% of its core expenditure incurred in the UK

High-end Television Tax Relief

To qualify for this relief, your company must produce a TV programme which:

  • Is certified as British by the British Film Institute
  • Is intended for broadcast to the general public – including streaming online
  • Is a drama, comedy, or documentary
  • Incurs at least 10% of its core costs in the UK
  • Has an average core expenditure of at least £1,000,000 per hour of broadcast time
  • Has a broadcast time slot of at least 30 minutes

Children’s TV Tax Relief

To qualify for this relief, your company must produce a TV programme which:

  • Is certified as British by the British Film Institute
  • Is intended for broadcast to the general public – including streaming online
  • Is intended for an audience under the age of 15
  • Incurs at least 10% of its core costs in the UK
  • The programme may be a quiz, game show, or content show with a prize total of no more than £1,000

Video Game Tax Relief

To qualify for this relief, your company must produce a video game which:

  • Is certified as British by the British Film Institute
  • Is intended for the general public
  • At least 25% of the core expenditure is on goods or services from within the European Economic Area

Research and Development Tax Relief – only for companies charged to corporation tax

The government offers two generous corporation tax reliefs to innovative limited companies with the aim of increasing R&D investment in small businesses. Most small businesses will fall into the SME tax credit scheme. This allows your business to deduct an additional 130% of R&D qualifying costs from taxable profits. For each £100 spent on qualifying R&D you will be able to write-off £230 when calculating taxable profits. 

If this creates or increases a loss, you can surrender that loss for payable tax credit at 14.5%. This results in your company receiving a cash sum from HMRC.

To be eligible for this form of the relief, you must meet the definition of an SME by having a staff count below 500, and a turnover below €100,000,000 or a balance sheet total below €86,000,000 when combined with any linked or partner enterprises. You must also not be in receipt of notifiable state aid in respect of your R&D project, have the project subsidised, or have the project subcontracted to you. If you do not meet any of these conditions, you may instead be able to claim under the slightly less generous Research and Development Expenditure Credit scheme. 

You can claim this relief with respect to a wide range of expenditure incurred while pursuing an advance in the scientific or technological position of your field. There are specific rules around what can be claimed but broadly, staff costs, software costs, the costs of consumables used, 65% of your subcontractor costs, and any fees paid to volunteers in clinical trials are all deemed qualifying R&D expenditure. You will not be able to claim for any capital expenditure, the costs of land, or the costs of anything not involved with the R&D activities. 

If you wish to claim this relief, you should do so through your normal CT600 company tax return. If you are claiming a repayable tax credit, you should also use supplementary form CT600L. These are specialist areas, and it is strongly recommended professional advice is sought on these matters. 

Should you ever not take a relief?

Whilst all the reliefs we have mentioned are legitimate, they are all subject to certain conditions being met. If unsure that these are met, it is recommended you seek professional advice. 

Be aware – if it looks too good to be true, it normally is. You may encounter arrangements or schemes being promoted as HMRC approved tax reliefs. However, if for example, these involve overly convoluted transactions and/or offshore arrangements this is unlikely to be the case. 

Prior to entering into any such arrangements, you should seek your own independent advice from a reputable firm. The reliance on such schemes is very likely to backfire and see you hit with a hefty tax bill and substantial penalties. There is also the possibility for criminal charges if the arrangement crosses the line to tax evasion.

How many reliefs can you claim?

Generally, you can claim for however many reliefs you are available for, however, there are some areas where this is not the case. For example, if you wish to claim any of the creative industries tax reliefs, you may be prevented from obtaining a tax rebate using the SME R&D scheme. This is because the SME R&D scheme prevents claims from the recipients of notifiable state aid. 

Conclusion

Claiming tax reliefs can be very beneficial in helping your business grow and maintain its market position but doing so can often be a complicated job. While guides like this can make the process seem simple, when it comes down to it, it can be difficult to judge your company’s eligibility for relief from an objective standpoint. 

It is always recommended that you seek professional advice on these matters as to avoid mistakes and to ensure you get the full relief available! At Lovewell Blake we have a number of specialist teams and expert staff who can help with any of the tax reliefs listed above as well as many other tax matters. 

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