You may be looking to start a new business in 2021, or just want to brush up on some self-employed tax knowledge, that you've let slip by the wayside.
Either way, we've rounded up some of the official tax relief schemes that are available to small businesses in the UK. That way, you can see if you can ease some of the financial pressure of running your own business.
Small Business Rate Relief
Business rates and COVID-19
Due to the COVID-19 pandemic, the government has announced that small businesses operating in retail, hospitality, leisure and services (e.g. hairdressing) will not have to pay business rates during 2020-21. They will continue to monitor this inline with the restrictions on trading.
Business rates during normal circumstances
Small Business Rate Relief, (also referred to as SBRR) aims to help small businesses operating in a property at a value of £15,000 or less. It's available across the UK, excluding Northern Ireland.
How is my rateable value calculated?
Your business property value is calculated by its open market rental value based on estimates from the Valuation Office Agency (VOA).
You should be able to apply for SBRR if you operate your business from a property with a rateable value less than £15,000. If you have more than one property, each of the additional properties must have a rateable value of less than £2,900 and the total rateable value of all of the properties combined must be less than £28,000.
If your business property value is above this threshold, but doesn't exceed £51,000, you may still be able to claim relief. The amount you could receive is calculated using the small business rate multiplier.
If you work from home, you should not have to pay business rates unless:
- Your domestic property is split into your business – i.e. you live above your pub or restaurant
- You sell things within your domestic property under your business name
- You employ people in your property
How to apply for Small Business Rate Relief
Applications for small business rate relief are via your local council. You can apply directly from their website, or find your local council through the government postcode finder.
There is no deadline for applications – and if you meet the criteria, you can receive the relief immediately, rather than the next financial year.
Once you've applied, you will not have to reapply the following year. But, you will have to contact the council should your circumstances change. For example, if you acquire a new property, they may ask you to reapply with this new information included.
Will any other reliefs impact my SBRR application?
If you are eligible for another rate relief such as charitable relief, this will be applied rather than SBBR.
If your business is registered as a charity, you should not pay tax on donations from individuals. If your charity or community amateur sports club (CASC) is part of the Gift Aid scheme, you can claim the tax back from donations you have received. Find out more about Gift Aid and how to apply here.
Employment Allowance or National Insurance Relief
Employment allowance, also known as National Insurance Relief allows eligible employers to reduce the National Insurance amount by up to £4,000.
You should be able to claim Employment Allowance if:
- You're a business or charity, and your total employer's Class 1 National Insurance liabilities were less than £100,000 in the previous tax year
- You're part of a group of charities or companies (connected companies), and your employer's Class 1 National Insurance liabilities are less than £100,000 for the previous tax year
- You're a carer or a support worker
Find out more about the eligibility criteria on the government website.
How to apply for Employment Allowance
Employment Allowance is applied through your payroll and PAYE applications. If you are a small business with fewer than ten employees, you can use HMRC's basic PAYE software to help you apply. You can download this on their website here.
If you currently handle your PAYE with different software, you should be able to enter 'yes' in the 'Employee Allowance Indication' box when you send your Employment Payment Summary (EPS) to the HMRC. For more detailed information, visit the government website.
Allowable business expenses
All businesses – no matter how small, will incur running costs and some of them are exempt from tax by the HMRC, to help with your cash flow. This means that when calculating your tax payments, you can deduct the number of allowable business expenses from this figure.
For example, if your business earns £50,000 in a tax year, but your allowable expenses are agreed at £10,000, you will only pay tax on £40,000, which is your taxable profit.
List of allowable business expenses
Allowable allowances are typically things you require to run your business effectively. They include things you'd use for less than two years, as well as your rent. Some examples of allowable expenses include:
- Stationary and office supplies
- Travel costs –e.g. fuel, parking or train fares
- Uniform and appropriate clothing or equipment for your staff
- Your rent and bill of your workspace or business
- Advertising and marketing
- Any products that you purchase to resell to your customers
- Training courses required to run your business safely and effectively
- Accountancy costs
- Insurance policies that protect your assets and your employees
- Petrol – if you're using a car or van for business needs, you can claim back 45p per mile for the first 10,000 miles
See the full list of allowable expenses on the HMRC website.
How to claim allowable business expenses
To claim back your business expenses, simply add up your allowable expenses for the tax year and input them on your tax return. You don't need to send your receipts to the HMRC with your Self Assessment, but you need to have them on record, in case you need to present them at a later date.
Business assets vs allowable expenses
Not all of your business costs will be covered by allowable expenses. Some higher-value goods such as computers or large machinery will be your business assets and should be listed as so on your balance sheets. You may be able to receive tax relief on your assets if they fall into the Annual Investment Allowance category.
Annual Investment Allowance
Allowable expenses give business owners tax relief from everyday costs. In contrast, the Annual Investment Allowance (AIA) scheme is designed to consider tax from higher-value purchases that you need to invest in for your business. These are referred to as 'plant and machinery', and they include things like:
- Items that you keep to use in your business
- Parts of a building considered integral
- Alterations to a building to install something like a lift or escalator
- Some building fixtures and fitting such bathrooms and kitchens
The AIA threshold changes often, last year it was temporarily increased to £1 million. You'll need to monitor the HMRC website for any new changes as this will impact your application.
What doesn't count as plant and machinery?
- Things that you rent or lease – you must own them
- Land or structures – e.g. buildings, bridges roads or docks
- Items that are used for entertainment
You can find out more about plant and machinery and AIA here.
Research and Development Tax Relief
If you think your business is contributing to research and development in science or technologies, you could claim tax relief – regardless of your project's success.
The stipulation for this tax relief is that it must be contributing to the advancement of the sciences or technology. This does not include economic or social science research or theory such as pure maths.
To receive your tax relief you should outline:
- The way your project has or will advance science/technology
- Why and how you've overcome an uncertainty
- How this was not something easily achieved by a professional in the field
How to apply for R&D relief
There are a few different ways you can receive R&D relief, based on your business's size. If you have fewer than 500 employees and a turnover less than €100m you should apply for SEM R&D relief which allows you to deduct 130% of your qualifying costs from your yearly profit.
If your business is larger than the SME threshold, you should be able to apply for the R&D Expenditure Credit scheme.
This works like a tax credit, and it is currently 13% of your qualifying R&D expenditure. This figure is frequently updated, so make sure you check HMRC guidelines to keep updated. You can see more about the application process here.
Creative Industries Tax Relief
According to the HMRC, over £1 billion was paid out in Creative Industries Tax Relief across 2019-20. Some of the industries that benefited from this scheme were; film, animation, video games, theatre and orchestra.
If your company pays corporation tax and is involved in the production of creative arts, you may be able to reduce the amount of corporate tax payable to the HMRC.
There are eight different types of creative tax relief available based on the below sectors.
- Video games
- Theatre production
- Orchestra concerts
- Museum and gallery exhibitions
The requirements for each are different, but to be eligible for any creative output must pass a cultural test organised by the BFI, who will issue you with a certificate for any finished or unfinished work.
You can find more about each specific sector's requirements in the Creative Industries Corporation Tax guide on the government website.
Keep up to date with business news
Regardless of your industry, if you're self-employed or the owner of an SME, there are government incentives to help ease the financial pressures that come with running a successful business.
This post has rounded up a few that we think could be useful as a starting point, but we recommend you research the government website for the best fit for your business needs.
For more useful tips and tricks for small business owners, head back to our blog.