In today’s challenging business environment, SMEs must seize every possible advantage to survive and thrive against growing competition.
And while many businesses seek to gain that edge by making big, bold changes (expanding into new markets, investing in new technology or streamlining services), it’s important to remember the little things that can make a big difference to your bottom line, too.
Little things like keeping on top of your tax - and knowing what tax breaks, reliefs or incentives your business might be entitled to. Maximising tax relief can play a crucial role in keeping your cashflow healthy, yet many SME owners are missing out on vital income because they simply don’t understand the rules.
In this blog, we’ll therefore look at some of the most common tax incentives that apply to small businesses. Every little helps, after all…
1) Register for VAT
If your business turns over more than £85,000 per year, you are obligated to register for VAT - but even if your turnover is beneath this threshold, it can still pay to sign up voluntarily.
On the face of it, registering for VAT probably doesn’t fit your idea of a ‘tax break’ - if anything, it might just sound like a hassle you could do without.
But registering voluntarily can actually give your cashflow a huge boost, allowing you to add 20% to your outgoing invoices (unless you’re providing VAT-exempt goods or services) to increase your income over the short term.
What’s more, being VAT registered can also help smooth the path to bigger business deals - as many large organisations will only work with suppliers who are registered for VAT.
2) Take tax off your annual events
You might not usually consider the taxman the charitable sort, but when it comes to your annual Christmas party, HMRC has a generous gift for all limited companies.
Assuming it’s your only event of the year, you can spend up to £150 per head on your festive bash as a tax deductible benefit.
Or, as the £150 is an annual limit rather than per event, you could alternatively choose to spend £75 per employee on your summer party and the other half on your Christmas do.
Either way, there are some caveats to be aware of. Firstly, your event(s) must be open to all your employees, not just a select group.
Secondly, bear in mind that the £150 is not an allowance, it’s a hard limit - and if you overspend by as much as a single pound, the whole benefit instantly becomes taxable.
3) Get your reward for R&D
In the quest to get ahead, today’s SMEs are more innovative than ever - continually looking to bring new products, services and technologies to market. But did you know there’s a tax incentive designed to reward that commitment to research and development?
R&D tax credits were ‘invented’ in 2000 to recognise UK companies ‘that seek to research or develop an advance in their field’. These credits typically take the form of corporation tax relief - and can even be claimed on unsuccessful R&D projects.
You’ll need to meet certain criteria of course, but if you invest significantly in innovation, it’s an avenue well worth exploring. According to HMRC’s own 2017 report, the average R&D claim for SMEs is now over £60,000.
4) Claim on clothing
Do you provide your staff with a uniform or protective clothing? If so, you won’t usually need to pay any tax or National Insurance on those costs - and you might want to let your staff know about a tax break that could help them save on their tax bill too.
Indeed, few people know that tax rebates are available to all employees who are required to clean, maintain or repair their own uniform. Claims can be backdated to the last four tax years, with rebates received as a single payment - potentially adding up to a nice little payday for put-upon staff.
Note though, that there is a defined criteria for what constitutes a uniform. HMRC itself states that a uniform means ‘a set of clothing of a specialised nature that is recognisable as a uniform and is intended to identify its wearer as having a particular occupation. Examples include traditional nurse or police uniforms’.
Clipping a name badge to otherwise regular clothes does not suffice to make a uniform, nor does the stipulation that staff must wear certain colours to work.
These are just a handful of common tax breaks for small businesses - but there’s plenty more you might be missing out on. With Inform as your tax advisor, we’ll make sure you’re always in the loop, so call us today on 0121 667 3882 or email firstname.lastname@example.org
Read more of Inform's tax blogs: