Research and Development (R&D) investment Tax relief is available on R&D revenue expenditure incurred by companies at varying rates. The current rates of relief are as follows: • for small and medium-sized (SME) companies paying corporation tax at 19%, the effective rate of tax relief is 43.7% (that is a tax deduction of 230% on the expenditure). For SMEs not in profit, the relief can be converted into a tax credit payment, effectively worth 33.35% of the expenditure although the payment is restricted to £20,000 plus three times the company’s relevant expenditure on workers • an ‘above the line’ credit exists for companies which do not qualify for the SME scheme. This is known as the R&D Expenditure Credit (RDEC) scheme and allows companies to claim a taxable credit of 13% for qualifying expenditure incurred on or after 1 April 2020. Generally, the credit is fully payable, net of tax, to companies
For most other plant and equipment, including some cars, the main rate applies. A WDA of up to £1,000 may be claimed by businesses where the unrelieved expenditure in the main pool or the special rate pool is £1,000 or less. Cars The tax allowance on a car purchase depends on CO 2 emissions. Under current rules, purchases of new unused cars with zero emissions attract a 100% first year allowance. For cars purchased with CO 2 emissions up to 50g/km, the main rate of 18% applies. Cars with CO 2 emissions above 50g/km will be restricted to the special rate WDA of 6%. For non-corporates, cars with a non-business use element are dealt with in single asset pools, so the correct private use adjustments can be made but the rate of WDA will be determined by the car’s CO 2 emissions. Remember, cars do not qualify for the AIA or FYA. Buildings When a building is purchased for business use, it may be possible to claim capital allowances on plant elements contained therein, e.g. air conditioning, subject to certain conditions. A joint election may need to be made with the vendor. Please contact us for further details and advice prior to any purchase. The Structures and Buildings Allowance is available on new, or the renovation of old, non-residential structures and buildings. Relief is available on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 3% on a straight-line basis.
for family members, so seek our advice first. Unincorporated businesses Business profits are charged to income tax and Class 2 and Class 4 national insurance contributions (NICs) on the current year basis. This means that the profits ‘taxed’ for each tax year (ending 5 April) are those earned in the accounting period ending in the tax year. For example, in the case of a trader who draws up his accounts to 31 July each year, his profits for the year ended 31 July 2022 will normally be taxed in 2022/23 however the forthcoming basis period reform will see a change to a ‘tax year basis’ so that a business’s profit or loss for a tax year is the profit or loss arising in the tax year itself, regardless of its accounting date. Numerous ‘fines’ are administered for those who fail to comply with the rules and regulations set by government departments. We have already mentioned income tax but other possible ‘traps’ to avoid are: • late VAT registration and late filing penalties • late payment penalties and interest • penalties for errors in returns • penalties for late PAYE returns • penalties for failing to operate a PAYE or sub- contractors scheme • penalties for failing to comply with pensions auto-enrolment regulations.
with no corporation tax liability Involving your family
You can employ family members in your business as long as it can be justified commercially. Family members can be remunerated with a salary and possibly with benefits such as a company car or medical insurance. You can also make payments into a registered pension scheme. It is worth noting that HMRC may challenge excessive remuneration packages or profit shares
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Business Tax
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