Give Me a Break: 5 Tax Shortcuts Every SME Should Know About

Tax, whether we like it or not, continues to form a large part of how we run our businesses today. But if the ‘T’ word still sends shivers down your spine, it’s worth remembering that knowing more about tax not only improves efficiency, but could also save your start-up valuable revenue in the long run. While it’s easy to get bogged down with the everyday demands of running a business, taking an afternoon to swot up on what tax breaks you could be eligible for – with many aimed at SMEs specifically – could result in an unexpected payout when you need it the most. We explore five tax breaks that could help lighten the load for your business.

Taking an afternoon to swot up on what tax breaks you could be eligible for – with many aimed at SMEs specifically – could result in an unexpected payout when you need it the most.

Annual investment allowance (AIA)

Part of a company’s Capital Allowances, the annual investment allowance means full value AIA items that qualify may be deducted from business profits before tax; as it stands, AIA can be claimed on the majority of plant and machinery. However, this relief does not include cars, previously owned items now used within your business, or items gifted to your business. Both sole traders and partners can qualify for AIA, though mixed partnerships are not eligible. It’s also worth noting that between January 1st 2019 and December 31st 2020, the AIA amount was temporarily increased to £1 million from £200,000. SMEs can seek to claim AIA via their tax return.

Small business rates relief

Designed to alleviate the pressure of substantial business rates, small business rates relief offers money off for business properties with a rateable value of under £15,000. While this is only available to SME owners of a sole property, existing relief will continue for 12 months should a second be purchased. Business owners with a premises worth less than £12,000, however, are not required to pay these rates at all. If you’re based in a village and the only business of your kind (e.g. a shop or post office) with a rateable value up to £8,500, Rural rate relief is also be worth investigating. SMEs can contact their local council to apply.

. If you’re based in a village and the only business of your kind (e.g. a shop or post office) with a rateable value up to £8,500, Rural rate relief is also be worth investigating

Creative industry tax reliefs (CITR)

For businesses working in the creative sector, a series of eight Corporation Tax reliefs cover the following sectors: film (FTR), high-end television (HTR), children’s TV (CTR), video games (VGTR), animation (ATR), theatre (TTR), orchestra (OTR), and museums and galleries exhibitions (MGETR). To qualify, businesses must first pass a cultural test, after which (if eligible) can benefit from a deduction of qualifying expenditure between 80pc and 100pc, or payable tax credit. To claim this relief, SMEs must be liable for Corporation Tax. Both certification and qualification are decided by the British Film Institute.

Employment Allowance

Employment Allowance can be worth up to £3,000 off your Class 1 National Insurance bill. Most businesses and charities (including community amateur sports clubs) qualify if paying their employees via PAYE, and can still claim the allowance if paying out less than £3,000 per year. Businesses that employ care or support workers are also eligible, yet for those with more than one employer PAYE reference – Employment Allowance can only be claimed against one. In addition, you cannot claim if you’re a director and the only employee (paid above the Secondary Threshold), employ someone for personal/household work, or are a service company working under the ‘IR35 rules’. SMEs can apply via their payroll software (ticking ‘Yes’ to Employment Allowance) when sending their next Employment Payment Summary. This can also be done via HMRC’s Basic PAYE Tools.

SMEs can apply via their payroll software (ticking ‘Yes’ to Employment Allowance) when sending their next Employment Payment Summary.

Seed Enterprise Investment Scheme (SEIS)

A form of venture capital scheme, the Seed Enterprise Investment Scheme is not a ‘technical’ tax break, but is designed to accumulate capital for your business. Should both SMEs and investors meet the HMRC criteria, small businesses could receive up to £150,000 worth of investment. To be eligible, your business must be no more than two years old, have less than 25 employees, and possess gross assets of no more than £200,000 when shares are issued. For those SMEs interested in pursuing SEIS, it is recommended they contact the venture capital schemes department within HMRC for the appropriate advice.

From Making Tax Digital to reducing your company’s annual tax bill, our expert accountancy team specialise in supporting your small business journey. Get in touch with Adams Moore to discuss your bespoke requirements.