Partner Article

Tax incentives for business growth

There are a range of tax incentives and reliefs available to help entrepreneurs grow their business but many remain unaware of these schemes. These incentives can contribute significantly to a business’ bottom line and the cost savings generated as a result can be reinvested into the business. From a government’s perspective, offering tax incentives can help to stimulate economic growth and assist with job creation. Businesses should aim to claim all of the tax reliefs which they are legally entitled to use.

Capital allowances

Businesses can claim a capital allowance against certain expenditure on cars, tools, machinery, equipment, research and development and other items. At present, businesses can get an initial allowance of 100% on the first £500,000 of expenditure on plant and machinery (excluding cars). This was announced in the Budget on 19th March and increased the allowance from April from £250,000.

Research and development

Corporation tax relief is available for expenditure on qualifying research and development equal to 225% of the amount spent at the company. For a company which pays corporation tax at 20%, this equates to a rate of tax relief of 45% of qualifying expenditure. However, this relief is only available to companies and not unincorporated businesses.

For those SMEs which are loss making and don’t pay corporation tax, you can claim a tax credit payable at 14.5% - combined with the 100% annual investment allowance (AIA) this can generate an effective subsidy of up to 33 for R&D work.

Patent box

The Patent Box relief enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions and certain other innovations. Only businesses which are liable for Corporation Tax and make a profit from exploiting patented inventions can benefit from this relief.

Tax reliefs also exist for investors in small businesses. Private investment is often a crucial lifeline for small businesses who may struggle to access the finance they need to operate and grow from their bank. Access to finance is one of the most important issues facing Small and Medium sized enterprises today.

Enterprise investment scheme (EIS)

The EIS scheme provides tax relief to investors in certain types of small, unquoted companies. The tax relief available comes in three forms and available tax reliefs can make investing under the EIS scheme a really attractive proposition for investors.

• An income tax reducer equal to 30% of the amount invested
• Exemption from capital gains tax on sale, provided that the relevant conditions are met for at least 3 years
• The ability to hold-over a capital gain on any asset against the EIS investment.

Seed Enterprise Investment Scheme (SEIS)

SEIS is an enhanced version of the EIS scheme and aims to encourage investment at small, fledgling businesses. The tax reliefs available are the same as for EIS, except the rate of income tax reducer is 50% as opposed to 30% of the amount invested. The relief, initially a temporary measure, was put on a permanent footing in the Budget.

Entrepreneur’s relief

Entrepreneur’s relief is available to business owners or partners, company directors and employees who hold 5% or more of the shares of the business for at least 12 months. If they sell the shares, the tax rate will be just 10% on the gain - limited to the first £10m of gain over their lifetime.

An accountant will be aware of all the tax reliefs that are available and can advise on eligibility as well as how to claim them. They can also advise on the most tax-effective structure for a particular type business.

This was posted in Bdaily's Members' News section by ACCA .