5 tax incentives every small business owner should know about

Starting your own business or working towards the next stage of growth can be an exciting, yet challenging time.

Saving on operating costs will undoubtedly be a big priority, but with many pull factors on your time, it can be easy for claiming tax incentives to slip down the ever-growing to-do list.

However, with many SME owners losing out on vital income from tax breaks and nearly half (46 percent) have a ‘very poor’ understanding of the tax relief available.

Reading through often jargon-heavy government literature on tax entitlements can be a time-consuming task, so here’s a simple list of 5 tax incentives you may be missing out on…

#1 Eureka!

More businesses are claiming research and development tax credits every year and the average claim value for SMEs is now £61,514. However, the Treasury still owes SMEs more than £84bn in unclaimed R&D tax relief due to low take up.

R&D tax credits were introduced by the Government in 2000 to reward UK companies who were developing innovative products and services. This can be in the form of a cash payment and/or a lower corporation tax bill.

This tax credits scheme isn’t confined to a laboratory, it’s purposefully broad; everything from a new piece of software to a boundary-pushing restaurant dish is covered.

Once you’ve received a nice financial boost, make sure you reinvest in more innovation, creating a never-ending loop of reward for your business.

#2 Keep things uniform

If a uniform is important for your brand image or helps to protect your staff on the job, both you and your employees could be due a tax deduction.

Employers must keep accounting records for uniform purchases. Having a permanent logo on your uniform makes your work clothes a uniform for tax purposes. This is applicable whether your uniform is a full outfit or a simple polo shirt or T-shirt. Clipping a detachable logo badge to otherwise ordinary clothes does not however, make those clothes a uniform.

Employees will need to claim individually for a rebate on the cost of maintenance. Claims can be backdated to the last four tax years and received as a single payment, while any future claims will be paid in wages.

Employees can quickly find out how much they’re owed by entering a few simple pieces of information into this online calculator which will provide an estimate and send out the relevant forms.

#3 Get VAT registered

Every business must register for VAT if their taxable turnover is more than £85,000. As many SMEs don’t meet this, small business owners are missing out on the benefits of VAT exemption.

Yes, VAT is another thing to think about, but it can give your cash flow a much-needed boost. You must register voluntarily – unless you provide goods or services which are exempt – to receive the business benefits such as boosting your profile, making business dealings easier and avoiding financial penalties if you do creep over the VAT threshold.

The simple option is the Flat Rate Scheme, making VAT payable as a single fixed percentage of gross turnover. If you want a more accurate figure, keep all invoices which are raised and paid to complete accurate tax returns every quarter.

#4 Save investors’ money

An indirect tax relief you may be missing out on is The Seed Enterprise Investment Scheme (SEIS) which can fast-track your business to the next growth stage. In 2015-16, 2,225 companies received investment through the Seed Enterprise Investment Scheme (SEIS) and £170 million of funds were raised.

SEIS offers investors attractive tax relief on Income Tax, Inheritance Tax and Capital Gains Tax and can benefit small, growth-orientated business who may find access to finance difficult.

There are certain criteria which need to be met: you must have fewer than 25 employees, have less than £200,000 in gross assets and you can raise a maximum investment of £150,000 over three years. Visit HMRC’s guidance page to find out if your eligible and how to apply.

#5 Party tax-free

Love them or loathe them, an annual staff event like a summer BBQ or Christmas party is a highly-valued office perk.

With Christmas parties alone costing UK businesses almost £1 billion a year, it’s worth noting if you’re a limited company you don’t need to pay tax or National Insurance on the associated costs.

If your event is annual, costs no more than £150 a head (including VAT) and all employees are invited, HMRC will provide you with a tax-free subsidy for food, drink, travel or accommodation.


By Tony Mills, director, Online Tax Rebates