Top 10 small business tax reliefs

So, take a look below, and see how many of these tax reliefs and exemptions you recognise, and more importantly, could utilise in 2014. Some are new entries, and others are old timers, but they all have one thing in common – they can save you tax.

1. Entrepreneurs’ relief 

As everyone seems to know, this is the tax relief that enables you to sell your company and only pay ten per cent tax! Although this is true, these high expectations are not always realised. The stumbling block here is that Entrepreneurs’ Relief comes with some strictly applied tests, and it’s easy to fall the wrong side of the line. Passing shares to non-working spouses, or holding non-voting shares, are just a few of the problems that can arise and can’t easily be undone at the 11th hour. A review of the qualifying conditions would be worth putting on your New Year’s resolution list.

2. Business Property Relief (BPR) 

As far as shareholder tax reliefs go, BPR is often overshadowed by Entrepreneurs’ Relief (‘ER’). This is somewhat understandable, but doesn’t do BPR justice, as it is arguably the more valuable of the two reliefs, providing a 40 per cent rather than just 18 per cent tax saving. The problem with BPR, is that it is usually not possible to pinpoint when it will be needed, and may not be relevant except in troubled times. However, this should not mean that it should be ignored, since if your shareholding can meet the qualifying conditions, it gives both peace of mind and 100 per cent relief from inheritance tax.

3. EIS and SEIS reliefs

Designed to help SMEs attract external investment, the Enterprise Investment Scheme (‘EIS’) and Seed Enterprise Investment Scheme (‘SEIS’) offer income tax and capital gains tax reliefs to equity investors in qualifying companies. EIS income tax relief is currently set at 30 per cent on investments up to £1m, and SEIS at 50 per cent on investments up to £100,000. Potentially of even more value to the investor, tax free capital gains are available after the shares have been held for three years.

4. Enterprise Management Incentive (EMI) tax reliefs

The rules surrounding the EMI share option scheme have been slightly tweaked in 2013, making the scheme even more attractive to employees when offering these as part of a remuneration package. A well designed scheme can provide relief against income tax on the acquisition of the shares, and on disposal of the shares the uplift in value can benefit from the low capital gains tax rate of ten per cent. These changes mean that the EMI scheme continues to be the standout scheme of choice for SMEs looking to grant share options to their key employees.

5. Holdover and rollover reliefs

Tried and tested over time, holdover and rollover reliefs provide for the postponement of tax on the disposal of qualifying business assets. Not immediately obvious, these reliefs can easily be missed and forgotten. Rollover relief may apply if you reinvest sales proceeds into replacement business assets, and holdover relief may apply if you gift business assets, including shares in unquoted trading companies. These reliefs are of particular use at times of change for the company or its shareholders.

6. Research and Development (R&D) relief 

Heavily favoured by government, R&D relief is the sparkles among its peers. Continually improved and updated, the ability for SMEs to now obtain a 225 per cent tax deduction for qualifying R&D expenditure, or to obtain cash repayments from HMRC, has meant this relief is finally getting the attention it deserves. It’s not all about conducting experiments in white lab coats, as more and more SMEs have found that even seemingly unrelated parts of what they do fall under the qualifying definition of R&D. It’s certainly worthwhile taking a closer look at this relief to see if you could also qualify.

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