Five tax incentives every micro-business owner should know about
26 Jun 2018
The Seed Enterprise Investment Scheme can fast-track your business to the next growth stage
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. Small BFPA members are encouraged to consider the following five tips to help them in their day to day businesses. They may seem obvious to more seasoned, larger companies but a surprisingly large number of micro SME’s have yet to take advantage of them!
1. 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.
2. R&D tax credits
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.
BFPA has partnered with a dedicated R&D Tax specialist. For further details contact Chris Buxton on 07787 400747.
3. 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 £1bn a year, it’s worth noting that 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.
4. 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.
5. Save investors’ money with the Seed Enterprise Investment Scheme
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 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 you are eligible and how to apply.