The cost of living crisis isn’t just affecting individuals and families — businesses are also feeling the pinch. Not only are the energy bills associated with running a business going up, but curbs in consumer spending are beginning to hit the economy badly.
It’s no surprise that businesses are looking at how to cut costs, and arguably one of the best ways of doing so is via business tax reliefs. Tax reliefs enable you to reduce the amount of tax you owe to the government. There are multiple types that you can benefit from, and we’ve outlined three of the best below.
1. Tax credits
Business tax credits are essentially subsidies that allow businesses to deduct an amount from the taxes they owe. They are different from tax deductions, which are taken from a company’s income before the amount of tax is calculated. Tax credits come in various forms, and are typically granted for a certain type of corporate activity the government wants to promote. Two prominent examples are:
- Research and development (R&D) credits: R&D credits are designed to reward companies for investing in innovation. In order to be eligible, you must be a limited company in the UK subject to corporation tax that has spent money on qualifying research and development activities.
- Creative Industries tax reliefs (CITRs): CITRs were introduced in the UK in 2013 to encourage long term investments in the UK’s creative industries, and work in a similar way to R&D tax credits.
As noted by tax experts Adsum, tax credits are “one of the best business loan alternatives around”, as “you get to advance some money that’s already coming your way, but without the laborious process of applying to HMRC and waiting for them to pay you.”
2. Annual Investment Allowance (AIA)
Annual Investment Allowance (AIA) is a type of tax deduction introduced to encourage UK businesses to invest in plant and machinery (essentially most tangible capital assets used in the course of a business) in order to encourage economic growth. It allows companies to deduct the cost of certain business assets and related costs when calculating your taxable profits.
The relief can be claimed on items worth up to a total of £1 million between 1st January 2019 and 31st March 2023, and must be claimed from the accounting period that you purchased them in. Common examples of things you claim for include:
- Assets that you use in your business, such as cars
- Parts of a building deemed integral, called integral features
- Some fixtures, such as bathroom suites, doors and kitchen units
- Costs of demolishing plant and machinery
- Building alterations to install other plant and machinery (repairs are not included, however)
You cannot claim AIA on items you lease, buildings, land and structures, or items used solely for entertainment. Assets you owned before launching your business and those given to your company also aren’t eligible for AIA — they must have been purchased by your business.
3. Allowable business expenses
There are also lots of business expenses you can claim tax relief on through allowable business expenses. This is designed to help you manage the costs of running a business by allowing you to deduct some of these expenditures from your taxable income. Some examples of allowable expenses include.
- Office costs: This includes items like stationery and software, in addition to rent, power and insurance costs.
- Travel costs: For instance, business vehicles and travel expenses, including fuel, breakdown cover and hotel stays.
- Clothing: This includes uniforms and protective clothing required for work.
- Staff: Staff expenses include salaries, pensions, training courses and benefits.
- Financial costs: For example, professional indemnity insurance premiums and the hiring of accountants, solicitors and surveyors.
- Items you buy to sell on: These include raw materials, stock and production costs.
- Advertising and marketing: For instance, website costs, print advertising and free samples.
- Training courses: Whether it’s onboarding or refresher courses, you can claim allowable expenses on training courses that improve you or your employees’ skills and knowledge for the benefit of your organisation.
Things you claim for include private purchases made using company money, property or trading income bought using your £1,000 tax-free trading allowance, or for the costs of personal use of something you use both professionally and personally, like a mobile phone.
As a limited company, these expenses can be deducted from your profits before tax, and simply relies on you reporting them as a company benefit.