Are you making full use of available business tax reliefs?

Almost half of respondents to our recent Finance focus for finance directors webinar poll were unsure or not confident that their business was taking advantage of all available tax reliefs and incentives.

That is perhaps unsurprising. The UK offers a wide range of reliefs and incentives, some of which reduce a company’s taxable profits, while others are aimed at shareholders, investors or employees. 

For businesses, some of the main reliefs to consider include: 

• Capital allowances – providing tax relief on qualifying investment in equipment, machinery and certain property expenditure. The timing and classification of expenditure can affect the relief available, so significant investment is worth considering in advance. 

• R&D tax relief – available where qualifying projects seek an advance in science or technology and address scientific or technological uncertainty. Claims now require detailed supporting information, making it important to identify qualifying projects and retain evidence as the work progresses. 

• Group relief – allowing qualifying losses in one group company to be offset against taxable profits elsewhere in the group, subject to the relevant conditions.

Other opportunities may also be relevant depending on the business. For example, the Patent Box can provide a reduced corporation tax rate on qualifying profits from patented inventions.

Many of these mainstream reliefs will be considered as part of preparing a company’s corporation tax return and used to reduce taxable profits or the resulting tax liability. However, that does not mean every available relief arises automatically. Claims, elections, supporting evidence and timing can all require active consideration. 

Reliefs beyond the company’s corporation tax position

There are also valuable reliefs that sit outside the company’s own corporation tax position.

Business asset disposal relief (BADR) can reduce capital gains tax (CGT) on qualifying disposals of a business or shares. If a future sale is being considered, it is important to review the qualifying conditions well in advance.

For businesses looking to raise finance, the Enterprise Investment Scheme (EIS) can provide valuable tax incentives to investors in qualifying companies. Similarly, Enterprise Management Incentives (EMI) can provide a tax-efficient way for qualifying businesses to reward and retain key employees through share options.

These reliefs can be particularly valuable, but they often require more forward planning than those routinely considered as part of the annual tax compliance process. 

Plan around commercial decisions

The key message is therefore to think about tax reliefs when making commercial decisions, rather than waiting until the year end.

Significant capital investment, R&D activity, losses within a group, fundraising, employee incentives, restructuring, succession or a future sale are all good reasons to speak to your advisor or get in touch with someone who can assist you.