Six tax breaks commonly overlooked by small business owners

Here, we look at some key tax breaks that could save your small company money.

Setting up a new business is exciting and challenging. It’s often the culmination of years of planning and you’ve probably concentrated on your vision and your brand and forgotten about tax. There are certain tax breaks that allow the business owner to save money that can be invested into the new company. Here are five useful tax breaks:

1. R&D tax credits

Even if you don’t feel that your company qualifies for this tax break, it’s well worth investigating further and possibly contacting R&D tax credit experts to see if they can advise you. Even if your small business is running at a loss you may find that you are entitled to R&D tax credits. The definition used by HMRC is broad and you don’t have to be engaged in laboratory work to benefit from this incentive. Software developers, architects and many other professions have all successfully claimed R&D tax relief as a result of this incentive. If you are wondering whether you might be able to submit a claim, this handy test offered by Surrey accountants RJP LLP could help answer your questions.

2. A useful resource

Always try to make use of your Annual Investment Allowance (AIA) in order to claim 100 per cent tax relief on any assets that can qualify as machinery and plant in the first year of purchase. The criteria for these assets are quite strict; so do check that your business will qualify. For example, company cars aren’t on the list. You also have to own the assets rather than lease them.

3. The Seed Investment Scheme

Take advantage of the Seed Enterprise Investment Scheme (SEIS). A business that’s just started and is looking for additional capital but doesn’t want to go to a bank can use this scheme that gives generous tax breaks to potential investors.

Another similar tax break that tempts potential investors to fund your SME’s growth is the Enterprise Investment Scheme (EIS). This scheme helps all SME’s not just start-ups. The income and capital gains tax reliefs alone make this a tempting proposition for potential investors. Caution needs to be exercised to ensure the tax relief is available to investors by following a strict procedure when applying for funds and getting the appropriate approval from HMRC for any schemes.

4. Enhanced Capital Allowance (ECA)

The government, in a bid to promote the use of energy saving equipment, introduced this scheme during the life of the Coalition government. According to the current government website, if you use cars that have low CO2 emissions, water saving equipment and many other products, that save energy you can take advantage of this tax break. The government website isn’t specific, in that it describes these ‘enhanced capital allowances’ as a ‘type of first year’s allowance, so if you want to find out more about ECA go onto the government website, or consult your accountant.

Related: Small businesses unaware of potential tax reliefs

5. Renovate a dilapidated business premises

The business renovation allowance will give SMEs a tax break. As long as the building your business plans to use has been empty for more than a year and was previously used in a different capacity, you may be eligible for 100 per cent tax incentive on any renovations you might carry out. This scheme is fantastic for any business that plans to bring an abandoned warehouse or shop back to life. It cannot be used to refurbish an existing office space however.

6. Reduce NICs with the Employment Allowance

If you have employees, claiming the Employment Allowance reduces the amount of national insurance you have to pay each year by up to £3,000. This works by you ‘claiming’ the allowance each month via your firm’s payroll process, as NIC liabilities arise. It means that no NICs are payable until your company’s entire £3,000 allowance has been used up. In some cases, a company can completely eliminate their Employer’s NIC bill as a result. Note, it is not possible to claim the allowance if your company only has one employee/director.

Further reading on tax

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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Tax & Vat