How to maximise tax relief for your small business

Running a small business comes with its fair share of financial responsibilities, and one crucial aspect is managing your tax liability.  

Maximising tax deductions is a smart way to keep more of your hard-earned money to reinvest in your business.  

In this article, we explore some valuable tips on how small businesses in the UK can make the most of available tax relief to reduce their tax bills legally and efficiently. 

Claim all allowable expenses 

HMRC allows you to deduct certain business expenses from your income, thereby reducing your taxable profit.  

Common allowable expenses include: 

  • Office rent or utility bills 
  • Cost of goods sold 
  • Employee salaries and benefits 
  • Travel and accommodation expenses related to business activities 
  • Office supplies and equipment 

Be sure to thoroughly review the official HMRC guidelines to ensure you’re claiming all the expenses you’re entitled to or speak to an accountant who can perform this task for you. 

Capital allowances 

Small businesses can benefit from capital allowances, which allow you to claim tax relief on assets you purchase for your business, such as machinery, equipment, and vehicles. 

Understanding the Annual Investment Allowance (AIA) and Writing Down Allowance (WDA) can help you make the most of these deductions. 

As of 2023, the AIA, which offers 100 per cent relief on plant and machinery investments, is set at £1 million. 

The WDA is more complicated and sees expense items grouped into pools depending on which rate they qualify for.  

  • The main rate pool (plant and machinery) has a rate of 18 per cent. 
  • The special rate pool (items that make buildings more environmentally friendly or improve them in some way) has a rate of six per cent.  

There are numerous other complicated regulations surrounding these capital allowances which we have not covered here. 

As such, it is important to discuss these allowances with a qualified and experienced accountant before proceeding.  

Research and Development (R&D) relief 

The UK Government encourages scientific and technology-based innovation through R&D tax relief.  

If your small business is involved in Research and Development (R&D) activities, you might be eligible for significant tax deductions on the expenses you incur.  

Companies engaging in R&D for new products, processes, or services in virtually every field are eligible for a cash payment or a Corporation Tax reduction when they submit a formal, comprehensive, accurate and detailed R&D claim. 

For small and medium-sized businesses, SME R&D tax relief is available where they comply with the following: 

  • Less than 500 staff 
  • Have a turnover of €100 million or less 

You should keep records of your R&D projects and consult with a tax or finance professional to determine your eligibility and maximise these deductions. 

Applying for R&D tax credits can be simplified with the assistance of an experienced accountant and is otherwise a tedious and complicated process.  

Employer’s National Insurance allowance 

One of the significant expenses that small businesses often face is the payment of National Insurance Contributions (NICs) for their employees.  

However, the UK government provides relief in the form of the Employer’s National Insurance Allowance, which can be particularly beneficial for small businesses.  

The Employer’s National Insurance Allowance allows you to reduce your employer’s NICs by up to £5,000 each tax year.  

This relief is available to most businesses, provided your total employer’s NIC liability in the previous tax year was less than £100,000. 

Self-employment expenses 

If you’re a sole trader or in a partnership, ensure you’re claiming all eligible expenses, such as home office costs, vehicle expenses, and other costs directly related to your self-employment.  

Keep detailed records of these expenses to support your claims and speak to an accountant to maximise these benefits. 

Keep accurate records 

The foundation of effective tax planning for your small business is maintaining accurate financial records.  

This means keeping detailed records of all your income and expenses.  

Use accounting software or hire a professional accountant to ensure your records are complete, organised, and compliant with HM Revenue & Customs (HMRC) requirements. 

Seek professional guidance 

Maximising tax deductions for your business is a strategic way to reduce your tax liability legally.  

By keeping meticulous records, claiming all allowable expenses, and taking advantage of available tax reliefs and allowances, you can ensure that your business retains more of its earnings.  

To ensure you’re maximising all available deductions and taking advantage of tax-saving opportunities, consider hiring a professional accountant with expertise in small business taxation.  

They can provide valuable insights and advice tailored to your specific situation. 

Consulting with a tax professional can help you navigate the intricacies of the UK tax system and optimise your tax strategy for the best possible results. 

To learn more, please contact one of our team.  

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