Are you making use of your tax-free corporate investment allowances?
21 Oct 2022
You want your business to be at the forefront of its sector. But you won’t be able to achieve this without keeping up with the ever-evolving industry.
Essentially, you need to be prepared to invest in research and development.
Whilst it might seem like a big hit to your company’s finances, the long-term benefits will outweigh the costs.
You must also be aware of any allowances you are missing out on, and make sure that you use these to your advantage.
What support can you get?
There are plenty of tax reliefs out there for businesses, but you need to zone in on which ones you are eligible for.
To help you, our experts have outlined a few of the most common reliefs available:
Capital allowances can reduce the amount of Corporation Tax that you need to pay, which comes as good news when you already need to buy new machinery.
The Annual Investment Allowance (AIA) means that you can deduct 100 per cent of any eligible plant or machinery costs from your business’s profits.
This allowance is now permanently set at £1 million per annum.
Enhanced Capital Allowances
If your projects are also eco-friendly, you can claim enhanced Capital Allowances. This type of first-year allowance can only be claimed for new and unused machinery and equipment.
This can be claimed on top of the AIA, and allows you to deduct the equipment’s full cost from your business’s profits.
This type of first-year capital allowance allows you to deduct 130 per cent for any qualifying plant and machinery investments.
Any qualifying special rate assets will be eligible for a 50 per cent first-year allowance.
This is only available for new plant and machinery purchased between 1 April 2021 and 31 March 2023.
It should also be noted that only incorporated companies within the charge of Corporation Tax can claim this.
Writing Down Allowances
If you’ve already claimed AIA on items worth a total of more than the AIA amount or the new asset does not qualify for AIA, you might be able to claim writing down allowances.
These tax allowances let you deduct a percentage of the value of an item from your profits each year. The amount you deduct can vary from one asset to another, so it is best to seek professional advice on this before making a claim.
SME R&D tax relief
If you have fewer than 500 members of staff, and a turnover of under 100 million euros, you could be entitled to R&D tax credits.
This allows you to deduct an additional 130 per cent of your qualifying costs from your annual profits. This means that you can deduct a total of 230 per cent!
Even if the business is loss-making, you could claim a tax credit worth up to 14.5 per cent of the surrenderable loss.
This can be claimed against certain types of research and development expenditure and is linked to the eligibility of the overall project.
To be eligible for R&D tax relief a project must:
- Be seeking an advance in science or technology
- Overcome scientific or technological uncertainties
- These uncertainties must not be readily deducible by a competent professional working within the field.
Research and Development Expenditure Credit (RDEC)
This tax credit is available to large companies working on R&D projects, as well as subcontractors.
From 1 April 2020, the credit was increased to 13 per cent of qualifying R&D expenditure.
What happens to unclaimed tax?
In most cases, you will want your money as soon as possible. So, it is best to get a clear handle on any reliefs you may be eligible for before investing.
But, you can reclaim any missed capital allowances within 12 months from the end of the accounting period in which you incurred the costs.
For advice on related matters, contact our team today.