Taxation is a difficult area for many businesses. It’s important to pay what is legitimately due, but with tax legislation constantly changing you may easily be paying more tax than you should.
Tax can be one of the most significant cash outflows for a business, leaving fewer funds for future growth and investment. With figures and procedures changing frequently, professional advice from those conversant with the latest regulations is essential if a company is to access the different forms of tax relief available – and to ensure that a business isn’t paying more than it should.
So, what can help you to maximise tax relief
Each business is entitled to an Annual Investment Allowance (AIA),which enables 100 per cent deduction on a certain amount of capital expenditure up to £25,000. But AIAs are subject to complex rules to prevent associated businesses getting more than one allowance. Certain capital expenditure (such as a company car) does not qualify. Furthermore, the timing of acquisition of capital assets is important – getting it wrong could result in paying more tax than you should.
A company can now receive up to 225 per cent relief against Corporation Tax. However, the rules on claiming R&D tax credit are often complex, with a time limit of two years from the relevant Corporation Tax year. Many businesses don’t realise that they are eligible and so it is worthwhile reviewing anything that could qualify for R&D funding. There are companies who can make the application for you, but they will take a percentage of any resulting monies.
EMI (Enterprise Management Incentive Scheme) are share options that allow for special tax treatment, designed to help a business recruit and retain key members of staff. The scheme allows for £120,000 of options to be granted to an employee with no income tax charge as long as the options are granted at market value. However, not all employees can be offered the options. Specific performance conditions must be met.
Tax shelters can offer ways of deferring tax liability in the UK for businesses and individuals. There are three shelters that a company can take advantage of:
1. Pension schemes
This is an important tax shelter, but often overlooked. Fundamentally, a company pension scheme is a tax free zone for assets to grow in value. It’s also an allowable deduction when arriving at taxable profits.
2. Enterprise Investment Scheme
This offers generous Income Tax and Capital Gains Tax relief to investors in certain types of companies. The scheme enables any CGT chargeable to be deferred indefinitely, if you reinvest that gain into a new trading company. The investment must be held for at least three years, whilst business property relief is available for Inheritance Tax purposes after two years.
3. Venture Capital Trust
This is essentially a company which is set up as a vehicle to invest in various risky news businesses. Individuals can buy shares in the VCT. In each tax year, up to £200,000 can be invested in a VCT with Income Tax relief at up to 30 per cent on the amount invested, provided you have sufficient income and paid tax. Any dividends from the VCT are exempted from Income Tax and any gains from the disposal of shares are exempted from Capital Gains Tax. The investment must be held for at least five years.
Ibrahim Aziz is the Managing Partner of Numerion Associates, a company of chartered accountants and business advisers.