Exploring Different Types of UK Tax Relief for Businesses

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Tax relief in the UK is a sigh of relief for taxpayers in the UK. The government of the UK has introduced various UK tax relief programs to individuals and businesses that are designed to minimize the tax burden subject to certain conditions.

Understanding tax reliefs is crucial if you are a taxpayer in the UK. Being aware of the tax relief helps taxpayers make informed decisions and formulate tax planning strategies to minimize tax liability and ensure tax compliance. This blog explains key tax reliefs for businesses in the UK.

Let’s discuss UK tax reliefs and how taxpayers can benefit.

What is Tax Relief?

Tax relief is the means by which you reduce your tax liability under specific conditions. It benefits the UK taxpayer and helps reduce the amount of tax payable or claim what is already paid to the government. Taxpayers can get tax relief in various ways including tax rebates on business expenses, tax on income, pension relief or remote work relief. There are certain ways to acquire tax relief, one is that if you fulfill the criteria of a certain relief, you are automatically entitled to that, and the second way is to apply for the relief.

Tax relief may be industry-specific or dependent on business structure, such as operating as a social enterprise.

Let’s first discuss the tax reliefs for small businesses.

Tax Reliefs for Small Businesses in the UK

VAT Relief

The VAT registration threshold has been increased from £85,000 to £90,000, meaning 28,000 small businesses are no longer required to pay VAT. Businesses with an annual VAT turnover below this threshold are exempt from charging or paying VAT, which also reduces administrative responsibilities for smaller enterprises. Additionally, SMEs can claim VAT relief on unpaid debts, which helps improve their cash flow. The UK government also offers simplified VAT accounting schemes to assist small businesses.

The VAT Flat Rate Scheme offers several benefits:

• Simplified record-keeping, eliminating the need for detailed sales and invoice records
• A fixed rate of VAT, which is lower than the standard rate
• Easier cash flow management
• Exemptions and special rates, such as reduced or zero VAT, for certain goods and services considered essential or socially beneficial, making them more affordable. For example, the reduced 5% rate applies to children’s car seats and home energy, while most food and children’s clothing are zero-rated.

Capital Allowances for Small Businesses

Capital allowances enable businesses to reduce their taxable profit, leading to significant savings while remaining compliant with UK regulations. There are various types of capital allowances available. In addition, certain purchases of plant and machinery, such as energy-efficient or zero-emission vehicles, are eligible for 100% first-year allowances, allowing SMEs to deduct the full cost in the year of purchase. For qualifying plants and machinery, small businesses can claim a super-deduction of 130% or a 50% first-year allowance, offering additional tax relief. If an asset does not qualify for the Annual Investment Allowance (AIA) or other first-year allowances, SMEs can instead claim writing down allowances, which allow them to deduct a percentage of the asset’s value each year.

Other Reliefs

Research and Development Tax Credits for Innovation

The R&D tax relief is designed to support UK businesses engaged in innovative projects and research aimed at advancing publicly available knowledge in a qualifying field of science and technology.

This relief applies to research focused on science and technology that is directly related to your company’s current operations or a business you plan to launch based on the outcomes of the R&D work.

Even if your business is operating at a loss, you can still claim a tax credit.

However, it’s important to note that not all areas of science and technology are eligible for relief, so it’s advisable to verify eligibility before making a claim.

Employment Allowance (National Insurance relief)

As an employer, you may be eligible to reduce your National Insurance bill by up to £5,000 per year by claiming Employment Allowance. This allows you to pay less in employers’ Class 1 National Insurance contributions each time you run payroll. Until you either reach the £5,000 limit or the end of the tax year, whichever comes first.

Starting in April 2025, the threshold will increase to £10,500.

You can claim Employment Allowance if your business or charity had Class 1 National Insurance liabilities of less than £100,000 in the previous tax year. However, from April 2025, this £100,000 limit will no longer apply.

Charity donations

Some relief is provided on charity donations to businesses subject to certain conditions.

Creative Industry Tax relief (CITR)

The Creative Industry Tax Relief (CITR) is designed to encourage investment in the creative sectors. Akin to R&D tax relief, CITRs provide tax deductions for the development and production of specific creative projects, including:

• Video games
• High-end television programming
• Children’s television programming
• Museum or gallery exhibitions
• Film production
• Orchestral concerts
• Theatrical productions
• Animation for television

The UK offers a range of tax incentives to support businesses in these creative industries, including Film Tax Relief, High-end Television Tax Relief, Video Games Tax Relief, Animation Tax Relief, Theatre Tax Relief, and Orchestra Tax Relief. These reliefs are aimed at promoting growth within the creative sector.

Patent Box

This tax relief encourages companies to protect their intellectual property, particularly patents. The Patent Box allows companies to apply a reduced rate of Corporation Tax on profits earned from patented inventions and certain other innovations, starting from 1 April 2013. The goal of the Patent Box is to incentivize innovation and the development of intellectual property in the UK.

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS)

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are tax schemes that help businesses raise funding. The scheme helps companies raise finance by providing tax relief to investors who purchase new shares in the business.

EIS, similar to SEIS, supports larger businesses. Both schemes help businesses to attract investment and reduce the risk of investment. It helps businesses to get access to the expertise of investor’s expertise and experience. It ends the need to manage costs related to bank loans.

About Us

It is crucial to understand tax landscape in the UK and Tax reliefs provided by the UK government to reduce tax liability. This helps businesses to save resources and invest in a better future.
For all companies, navigating the rough tides of taxation is critical. The worst part about handling tax is the ever-changing tax compliance rules.

This is where the expertise of our professional accountants comes in. As a top consultancy in London, we, at SSCOGlobal UK offer comprehensive tax compliance services in the UK. With us, managing your company taxes will never be a problem.