What tax reliefs are available for my business? - Ad Valorem

There are several tax reliefs and incentives designed to help small businesses thrive. In this article, we will explore some of the most common tax reliefs available to limited companies in the UK.

R&D Tax Credits

R&D tax credits are a significant incentive for companies engaged in innovative research and development activities. These credits are intended to stimulate innovation and economic growth by reducing the overall tax liability of qualifying companies. There are currently two types of R&D tax credits available:

a. Small and Medium-sized Enterprises (SMEs) Tax Credit:

SMEs can claim up to 186% of their qualifying R&D expenditure as tax relief. If your company is making a loss, you can receive a cash payment from HMRC. This relief is designed to encourage small and medium-sized businesses to invest in research and development.

b. Research and Development Expenditure Credit (RDEC):

Large companies can claim RDEC, which provides a 20% tax credit based on the eligible R&D expenses for the year. Large companies can receive a cash payment, but it is offset against other liabilities first, with the remaining balance then being paid to the business.

There is currently a consultation to merge the two schemes into a single scheme, with more information on this expected in the Autumn Budget 2023.

For further information about R&D tax credits, including the changes introduce by HMRC in 2023, read our “R&D important updates” article.

Capital Allowances

Capital allowances are deductions that can be claimed for eligible capital expenditure, such as equipment, machinery, and other assets used in your business. The two main types of capital allowances are:

a. Annual Investment Allowance (AIA):

AIA allows you to claim 100% tax relief on qualifying capital expenditures, up to a specified limit.

The current AIA limit is £1,000,000 (2023 tax year).

b. “Full Expensing” First-Year Allowances:

This is a temporary relief announced by the Government which allows for 100%/50% tax relief on certain qualifying assets which are new and unused, with no limit on the amount of relief available.  This relief is available on expenditure incurred from 1^st April 2023 to 31^st March 2026.

Patent Box

The Patent Box regime is a tax relief designed to encourage companies to protect and commercialise their intellectual property, including patents. Under this scheme qualifying profits from patented inventions are subject to a reduced rate of Corporation Tax.

This reduction aims to incentivize innovation and the development of intellectual property in the UK.

Creative Industry Tax Reliefs

The UK offers various tax incentives for businesses in creative industries, such as film, television, video games, animation, and high-end television production. These reliefs are intended to support the growth of the creative sector and include:

• Film Tax Relief
• High-end Television Tax Relief
• Video Games Tax Relief
• Animation Tax Relief
• Theatre Tax Relief
• Orchestra Tax Relief

Enterprise Investment Scheme (EIS) & Seed Enterprise Investment Scheme (SEIS)

EIS and SEIS are tax-advantaged investment schemes that encourage individuals to invest in small and early-stage companies. These schemes offer significant tax benefits to investors looking to invest in small businesses.

EIS provides Income Tax relief, Capital Gains Tax exemptions, and loss relief for investors.

SEIS offers even more generous tax breaks for those investing in very early-stage start-ups.

For further information watch our webinar “EIS and SEIS Explained”.

Employment Allowance

Employment Allowance is designed to help small businesses by reducing the cost of employing staff. Eligible employers can claim a reduction in their National Insurance Contributions.

Summary

HMRC offers a range of tax reliefs to encourage business growth, innovation, and investment. Limited companies can benefit from various incentives, such as R&D tax credits, capital allowances, and sector-specific reliefs. By taking advantage of these tax reliefs, your company can reduce its tax liability and reinvest those savings into research, development, and growth. It’s essential to stay informed about the latest changes in tax laws and seek professional advice to ensure you are maximising your eligibility for these valuable incentives.

If you have any questions regarding any of the reliefs covered in this article, please don’t hesitate to contact us. One of our experienced tax team would be happy to answer your questions.