Unveiling Lesser-Known Tax Saving Strategies for SMEs

Today we unfold the curtains on some less-explored ways that Small and Medium-sized Enterprises (SMEs) can optimise their tax positions. Taxes, as many of us know, can be a complex labyrinth to navigate. And for SMEs where every penny contributes to growth, understanding the ins and outs of this labyrinth is crucial. So, pull up a chair, take a sip of your favourite brew, and let’s delve into the lesser-known, yet potentially profitable world of SME tax-saving strategies.

Demystifying R&D Tax Credits

Research and Development (R&D) tax credits are often a vastly untapped resource for reducing a business’s tax burden. These credits are designed to foster innovation and progress within the UK’s business landscape. Intriguingly, HMRC data shows that in 2021-22, a whopping £5.3bn was claimed by businesses across the UK in R&D tax credits. Despite such significant benefits, many SMEs do not harness this golden opportunity, primarily because they believe their day-to-day activities don’t qualify as ‘R&D’. But if your business involves any level of innovation, improvement, or problem-solving, there’s a high chance you could be eligible. For instance, you may be developing a unique software solution or perfecting an existing product design – such activities can often qualify. If you’re curious about whether you’re leaving money on the table here, Devonshire Green’s tax consulting team can provide expert guidance. We also have some more detailed information about R&D Tax Credits for SMEs.

Capital Allowances: Uncovering Hidden Benefits

Most businesses comprehend the basic concept of claiming capital allowances on office equipment like computers, furniture, and machinery. But, did you know that there’s much more to capital allowances than just the tangible ‘stuff’? Indeed, fixtures and integral features in buildings also qualify for capital allowances. This extends to lighting systems, heating and air conditioning systems, or even the alarm system safeguarding your business. The Office of Tax Simplification indicates that only about 40% of businesses maximise these benefits, signifying a vast opportunity for tax savings.

Other Not-So-Obvious Capital Allowances

Let’s dive a little deeper into the realm of less obvious capital allowances:

• Eco-friendly cars: The UK Government is passionate about promoting environmental sustainability. Reflecting this, cars with low CO2 emissions (under 50g/km) qualify for a 100% first year allowance. If you’re planning to invest in a business car, considering an eco-friendly option could fetch significant tax benefits.
• Renovating business premises in designated areas: Here’s another often-overlooked area. If your business involves renovating properties in certain designated disadvantaged areas, you could claim up to 100% in capital allowances. This is a fantastic incentive to contribute to urban regeneration while also reaping tax benefits.

Thinking About Incorporation? Here’s Why You Should

If you’re currently operating as a sole trader or a partnership, one less common way of potentially saving tax is by converting your business to a limited company. As a limited company, your business is taxed differently and can often result in a lower tax liability. In fact, Companies House data reveals a 12% increase in new incorporations in 2022 alone, indicating a trend among businesses to utilise this tax-saving strategy. Remember, though, that incorporation isn’t for every business. It’s an important decision with various implications and should be taken after thorough advice and consideration.

Wrapping Up: Expanding Your Tax-Saving Horizons

While the conventional methods of saving tax are certainly valid, there exists a galaxy of lesser-known strategies for SMEs to save on their tax liabilities. The tactics mentioned above are just a glimpse into this world. For more detailed, personalised advice, our full suite of services is at your disposal.

Fun Fact to Ponder

Did you know that, as per HMRC, SMEs comprise a massive 99% of all businesses, but they only account for around 30% of total R&D tax credit claims? This disparity suggests there’s a veritable treasure trove of untapped potential waiting to be discovered!

And so, we end our enlightening journey for today. Remember, the key to running a successful business doesn’t just lie in making money, but also in keeping it and growing it. When it comes to tax liabilities, a bit of knowledge goes a long way, and we hope we’ve armed you with some today.

Ready for a Tax-Saving Adventure?

If you’re ready to explore these tax-saving strategies in more detail, we’re all ears at Devonshire Green. Don’t hesitate to drop us a line and let’s embark on a journey to help your SME maximise tax savings and strengthen your financial foundation. Remember, learning is a never-ending journey, especially when it’s about making your hard-earned business money stretch further. Until next time, happy tax planning!