Top 10 small business tax reliefs

7. Patent box relief  

Inspired by the Benelux countries, this new kid on the block was released in April 2013. It has been much heralded as a way of encouraging innovation. Introduced on the back of huge expectations, this relief is yet to be fully understood, but does have the potential to reduce the corporation tax rate to ten per cent on profits attributable to UK or European patents. If you are liable to corporation tax and hold or develop patented products, then the patent box is likely to be for you.

8. 100 per cent Capital Allowances 

Tax relief for expenditure on capital equipment is generally provided at a standard rate of 18 per cent. However, there are certain circumstances where 100 per cent allowances are available, and this can really support businesses by immediately reducing their tax burden. Such 100 per cent allowances may be available under the following schemes:

  • The Annual Investment Allowance offers 100 per cent allowance for up to £250,000 of qualifying expenditure (this limit was introduced from 1 January 2013 for a temporary period of two years);
  • Enhanced Capital Allowances provide 100 per cent allowances for expenditure on qualifying energy saving technologies;
  • Enterprise Zone First Year Allowances are available for companies investing in plant and machinery for use in designated Enterprise Zones; and
  • New cars not emitting more than 95g/km CO2 can also qualify for 100 per cent allowances.

9. Corporate loss reliefs 

The corporate tax system provides a multitude of different loss reliefs, and care is needed to keep track of all the alternatives and to utilise them in the most appropriate manner. Much will depend on the nature of the loss to establish how it can best be used e.g. set off in the period, carried backwards, carried forward or group relieved.

This variety and flexibility provides many opportunities, and corporate tax loss reliefs have stood the test of time as being an essential part of the SME tax planning tool kit.

10. Holding company exemptions 

Given the recent surge in international activity, the UK holding company regime has come much more into focus over the last few years. During this period, a huge amount of work has gone into redesigning the regime, so that it’s now internationally competitive, business friendly, and supports SMEs looking for new markets overseas.

More than just a single relief or exemption, there is an entire exemption regime to consider, including:

  • The Controlled Foreign Company exemptions have been completely overhauled with new exemptions being introduced from the start of 2013;
  • The Dividend Exemption system has now settled down, so that most dividends (although not those received by small companies from non-treaty countries) will be exempt when received by the parent company in the UK;
  • The Substantial Shareholding Exemption, which for all its faults and tortuous wording, can usually be negotiated to enable groups to restructure (and dispose of) their overseas shareholdings without tax impinging on the commercial decision; and
  • The Branch Exemption, which enables companies to elect for their overseas activities to remain outside the charge of UK corporation tax.
So there you have it. A quick synopsis of some of the more important reliefs and exemptions included within our tax system. All companies are likely to use at least one of these in 2014, most are likely to use many more, but hopefully none will need to utilise all of them!

Related Article: Companies that don’t pay tax UK

Nick Farmer is a partner at Menzies LLP.

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