Tax Credits for Small Businesses: Maximizing Savings in UK Corporate Tax

There are many different ways to reduce your small Business tax bill. These often take the form of relief and qualified expenses – collectively known as tax deductions. Many small Businesses pay too many UK Corporate Tax credits each year simply because they don’t claim the appropriate UK Corporate Tax credits deductions. This problem is even more evident in small Businesses, where some owners prefer to manage their own tax affairs and not hire the services of a professional accountant. 

Tax Deductions – Commitment Rules  

Commitment rules? Perhaps “ground rules” is a more appropriate term. However, many people believe that not paying too much tax is a big challenge that requires a fighting attitude. Let’s also remember that when it comes to tax deductions, if you don’t claim them, you will end up paying unnecessary taxes. Take a moment to think about the following “rules” that will be helpful to you: 

1. Expenses – Claim Everything That Qualifies As 

There are many qualifying expenses that can be requested. Let’s start with the best-known: 

  1. premises costs, for example, rent and utility bills 
  2. salary and staff costs 
  3. interest on bank loans 
  4. inventory or raw material costs rough 
  5. office expenses, stationery, etc. 
  6. travel and accommodation costs for small Business trips 
  7. professional fees, e.g. accounting and law 
  8. advertising and marketing costs 
  9. insurance payments 
  10. childcare 

And then there are the lesser-known expenses – many of which small Businesses simply don’t require: 

  1. The costs of setting up your LLC 
  2. Christmas parties 
  3. bad debt claim, i.e., for example, when  not paying bills 
  4. broadband 
  5. mobile phones 
  6. bicycle miles 
  7. parking costs 
  8. books and magazines 
  9. small Business gifts 
  10. charitable donations  
  11. exams look up from views 
  12. flights 
  13. memberships and registrations 
  14. training  

There are different UK Corporate Tax credits and declaration rules depending on the type of expense. You can find a full list of costs and benefits, along with relevant regulations and tax rates on the GOV.UK website as an A to Z list.

2. Capital Deduction 

Capital deduction can be claimed when a company purchases assets necessary for small Business purposes, in particular “plant and machinery” (i.e. machinery and equipment necessary for small Business purposes). small Business purposes), as well as specialized vehicles, including cars, trucks, and vans. ). 

Once the value of the items has been calculated, this value can be deducted from profits before calculating tax on the difference. In addition to plant and machinery, capital allowances may also be claimed for: 

  1. renovation of small Business premises in deprived areas of the UK 
  2. mining and dredging 
  3. research and development development (R&D) of 4,444 patents and “know-how” (i.e. intellectual property related to industrial engineering); and 
  4. buildings and structures (i.e. construction costs) 

The full value of the property covered by the annual investment allowance can be deducted from pre-tax profits. This applies to most plants and machinery (except cars) up to the maximum amount involved (currently £1 million). 

In addition to the Annual Investment Allowance, the full cost of assets which qualify for ‘first-year allowances’ (e.g. some cars with low CO2 emissions) can also be deducted. 

3. Trading Losses 

Trading losses can be used to claim relief for the purposes of calculating Corporation Tax. Tax relief is obtained by offsetting the loss against other small Business gains or profits in the same accounting period. However to calculate a trading loss, capital allowances (which increase the loss) and balancing charges (which reduce the loss) should be included. Losses or gains that may result from the sale or also disposal of assets should not be included. 

Similar tax relief applies to losses arising on the sale or disposal of capital assets and capital gains. 

4. Research And Development Aid Research And Development (R&D) Aid 

 is designed to help companies carry out innovation projects in the field of science and technology. Companies must undertake a specific project to receive R&D support and  must explain: 

  1. how a project  sought to advance science and technology 
  2. the project  had to  overcome uncertainty about how to make sure and 
  3. why the solution to this problem cannot be easily found by a competent professional domain name. 

There are many different forms of R&D support. SMEs (i.e. those with less than 500 employees and a turnover of less than 100 million euros or a total balance sheet of less than 86 million euros) can benefit from R&D support for medium and small business. 

It allows qualifying small Businesses: 

To deduct an additional 86% of qualifying expenses from their annual profits, in addition to the regular 100% deduction, for a total deduction of 186%, and claims a tax deduction if the company makes a loss, up to 10% of recoverable losses. 

Large companies undertaking R&D projects (or companies that have been subcontracted to carry out R&D work by a large company) may claim research tax credits. However Development Expenditure Credit. This is essentially a tax credit calculated at 20% of a company’s eligible R&D spending. 

Please Note

R&D support is not provided for research or advancement in a social science field (e.g. economics)  or related to a theoretical field (e.g. mathematics pure).

5. Patent Box System 

The Patent Box System allows companies to apply a however reduced UK  Corporate Tax rate to profits derived from one of their patented inventions. 

Eligible small Businesses that successfully register with the Patent Box can essentially reduce their UK Corporate Tax credits rate by 10%. 

6. Employment Allowance 

 Employment Allowance is a scheme which allows certain limited companies to reduce their annual National Insurance Contributions (NICs) by up to £5,000 per tax year. It is for employers with a Class 1 National Insurance liability of less than £100,000 in the previous tax year. 

A sole director cannot claim employment benefits. 

7. small Business Rates 

Small Business rates are essentially taxes (similar to council tax) that are levied on small Businesses using non-residential property (e.g. shops, offices, pubs). Alcohol, etc.) must be paid. These costs are generally considered tax-deductible small Business expenses. 

Additionally, many small Businesses can benefit from small Business rates relief, which is a deduction from standard interest rates. In response to the coronavirus pandemic, small Businesses in the retail, hospitality and leisure sectors in England have been exempted from small Business rates for the 2020 to 2021 tax year. 

8. Tax Relief For Industries Creative 

The creative industries relief grants include eight different types of UK  Corporate Tax relief, allowing eligible small Businesses to increase the amount of their allowable spending, ultimately reducing the overall tax bill of companies. 

small Businesses that profit from motion pictures, “premium” television, children’s television, animated television, video games, theatrical productions, orchestral concerts, exhibitions exhibits in museums or galleries, etc., can claim tax breaks for creative industries. 

The company requiring these grants is responsible throughout the development process, from the beginning of pre-production to the completion of the film, show or video game. For theatrical productions, concerts, and also exhibitions, they must be responsible for producing, directing, and finishing production. 

Types Of Support For Creative Industries 

Film tax relief – the film must be released theatrically, and at least 10% of underlying costs must relate to UK operations. 

  1. Animation tax relief – the program must be for broadcast (including streaming), at least 51% of base expenditure must be for animation, and at least 10% of base expenditure must relate to other operations in the UK. 
  2. Tax credit for premium television – the program must be a drama, comedy or documentary. 
  3. Tax relief for video games – at least 25% of the underlying expenditure must be for goods or services supplied by the European Economic Area (EEA). 
  4. Children’s television tax credit – this is an extension of the premium television tax credit (see above) but relates specifically to the production of children’s television programs. 
  5. Theatre Tax Relief – this applies to ballets or plays, operas, musicals or also other dramatic pieces where the performances are live. 
  6. Orchestra Tax Relief – this applies to orchestral production companies putting on a qualifying orchestral concert. 
  7. Museums and Galleries Exhibition Tax Relief – this is available to qualifying primary and secondary production companies that put on a qualifying exhibition. 

To qualify for creative industry tax reliefs, all films, animation and also television programmes or video games must be certified as “British.” Or, they must pass a cultural test or qualify through an internationally agreed co-production treaty. This process is managed by the British Film Institute on behalf of the Department for Digital, Culture, Media and Sport. 

9. Goodwill And Related Assets 

The company receives tax reductions for certain intangible assets such as intellectual property and goodwill (corporate reputation). Impairment of goodwill and related assets  at a fixed rate of 6.5% per annum to the lesser of: 

  1. the original cost of the related assets or 
  2. 6 x the cost of all qualifying intellectual property purchased by the small Business. 

For a full explanation of the relevant intangible assets, see HMRC’s Corporate Intangible Assets Research and Development Handbook. 

10. Working From Home 

Although this issue was mentioned in the previous heading, “Cost,” it is worth mentioning because of the increasing number of people working from home. 

If the home is used for small Business purposes, all LLCs can claim a percentage of household expenses and also utility bills as qualified small Business expenses. This can be claimed by: 

  1. taking advantage of HMRC’s flat  £26 per month tax relief for working from home  or 
  2. calculating the exact amount by calculating the proportion of household expenses incurred for small Business purposes 

Please note that if you use the second option, you will need to keep complete records of these expenses, including any receipts, invoices or contracts.

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