There are a number of tax benefits available to small and medium-sized enterprises (SMEs), and some of these can prove extremely useful. However, many SMEs do not have in-depth knowledge of these matters, and may be missing out on some of the tax advantages to which they should be entitled. As a result, they could be paying a lot more to the taxman than they need to.
A conversation with your accountant should clarify exactly which tax advantages are available for your business. However, some key benefits to consider include:
Rolled out in April last year when the 2014/2015 tax year began, employment allowance was designed to make it easier for SMEs to take on employees by reducing the financial burden associated with doing so. It has the potential to completely eliminate employer National Insurance expenses for many small businesses, carrying significant savings with each tax year.
Working out if you are eligible for this particular tax advantage is simple. If the amount you pay in employer National Insurance is usually under £2,000 in a year, then you are eligible. As a result, you won’t have to pay any contributions at all for the 2014/2015 tax year and onwards.
The Patent Box Scheme
The Patent Box Scheme could potentially entitle you to an advantageous corporation tax rate on some of your profits. This scheme was introduced on the 1st of April 2013, but is not currently as well-known as it could or perhaps should be.
The Patent Box Scheme applies to smaller companies that make some or all of their profits from products on which they hold a patent. If this applies to your business and you are liable for corporation tax, you should be eligible. Under the scheme, all profits earned by SMEs on patented inventions are eligible for the advantageous 10% corporation tax rate. This applies if the patents are owned or licensed-in exclusively by your company, and you have undertaken qualifying development on them. If your company is part of a group and another company in the same group has undertaken qualifying development, you may also be eligible.
Enterprise Investment Scheme
If your business is looking for investment, you may be able to offer tax relief to your investors through the Enterprise Investment Scheme (EIS). This has a knock-on effect beneficial effect for your business as well as providing a tax benefit for investors, and is useful as a way of helping to attract investors more readily and in greater numbers.
If your business qualifies for the scheme, investors will be able to claim tax relief of up to 30% on purchases of new share issues up to £1 million of investment. The Seed Enterprise Investment Scheme could provide a further tax advantage, allowing 50% tax relief on up to £100,000 worth of investment. Gains make on the increased shares are not subject to Capital Gains Tax.