Is your business approaching its year-end? Get planning now!

With England being in its third lockdown, it is essential to ensure you are doing what you can to maintain your business through this trying time.

It is vital to avoid any fines from missed obligations, to minimise any tax liabilities, and reviewing all the tax reliefs and allowances available is a step in the right direction.

Implementing a thought-through tax plan can improve your cash flow and profitability, help your business save money and offer cash tax credits to support investment in your company. All of which is essential during the third lockdown.

Therefore, we have listed some of the reliefs and allowances on offer below for you to consider.

Annual Investment Allowance (AIA)

In 2020, the Government announced that the temporary £1 million increase to the AIA from £200,000 is extended until 1 January 2022, to help businesses invest.

Therefore, businesses across the UK can continue to claim up to £1 million in same-year tax relief through the AIA for capital investments in assets.

So what expenditure qualifies under the AIA?

The answer is most items of machinery and plant. You cannot claim on cars, items you owned for another reason before you started using them in your business, and items given to you or your business.

With the AIA, businesses can subtract the full value of an item that qualifies for AIA from their profits before tax.

Enhanced Capital Allowance (ECA) Scheme 

The ECA Scheme enables businesses to invest in environmentally efficient technologies and claim 100 per cent first-year allowances, such as tax relief on investments into specific products and technology.

With the ECA, you can deduct either the total cost or up to the published claim value of the product against taxable profits in the year of purchase.

The scheme can help you to improve your business’ cash flow in the year that you invest in the new equipment.

Similarly to the criteria of the AIA, the investment of new machinery and plant only are eligible under the ECA Scheme, not second-hand or used.

Research and Development (R&D) tax credits

Have you invested in any R&D related equipment or programmes? If so, you could claim R&D tax reliefs, if you meet the required criteria.

R&D Expenditure Credit (RDEC) 

If you are a large company, you can claim RDEC for working on R&D projects.

Companies who have subcontracted R&D work by a large company can also claim.

From 1 April 2020, RDEC increased to 13 per cent, of your qualifying R&D expenditure.

SME R&D Relief

If your business falls under small and medium-sized companies (SMEs), you can benefit from the SME R&D Relief.

An SME has less than 500 employees and a turnover of under £89 million or a balance sheet total under £77 million.

SMEs can deduct an additional 130 per cent of their qualifying costs from their yearly profit, along with the original 100 per cent deduction, to make a total 230 per cent deduction.

Alternatively, SMEs can claim a tax credit if the company is loss-making, worth up to 14.5 per cent of the loss.

Small Business Rate Relief

If your business property’s rateable value is less than £15,000, or if your company only uses one property, then you can qualify for a small business rate relief, through your local council.

With this relief, you will not pay business rates on a property with a rateable value of £12,000 or less.

Has your property got a rateable value of £12,001 to £15,000? Then the rate of relief will go down continuously from 100 per cent to 0 per cent.

Need help with year-end tax planning? Contact our experts at Thompson Wright today.

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Posted in Blog, Business planning, Business tax, Corporation tax, SMEs, Tax.