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Is your business missing out on Government tax breaks?

According to a new report by leading accountancy firm, Baker Tilly, most business owners are in the dark about the Government tax incentives available to them to help promote growth. Here, we look at the main schemes that are available to businesses and individuals.

Government tax breaks

Knowledge gap

The ‘knowledge gap’, is quite startling; just one funding scheme (capital allowances) was recognised by a majority of respondents to the survey.

Just under a third had heard of the Enterprise Investment Scheme (EIS), 19% had heard of Venture Capital Trusts, and one in five was not aware of any of the Government funding programmes.

Some tax incentive programmes fared even worse, with only 4% recognising the newly-launched Patent Box, and 8% the Seed Enterprise Investment Scheme.

Commenting on the poll results, George Bull (Tax Partner) said that the responsibility for this knowledge gap should be shared between business owners and the Government, “There’s clearly an issue of awareness that the Government needs to address, but SMEs also need to take responsibility for finding out about R&D and other tax breaks on offer, in order to take advantage of all opportunities to grow.”

So what benefits do the various Government schemes offer investors and small businesses? Here’s a very brief summary of the funding schemes mentioned in the survey.

Capital Allowances

This scheme is essentially a way to account for depreciation for tax purposes, which can be used by both limited companies and the self-employed.

The Annual Investment Allowance (AIA) applies to plant and machinery acquisitions. It is currently at its highest rate – £250,000 from 1st January 2013 (a ten-fold increase on the previous limit).

In addition, a 100% first year allowance is also available for certain types of expenditure, such as equipment which helps the environment.

R&D Tax Credits

Used to encourage businesses to invest more in research and development. This incentive has been expanded by successive Governments since 2000. George Bull said “anecdotal evidence suggests there is a perception that R&D refers to lab-based work only, whereas a whole range of innovative measures in SMEs can be classified as R&D.”

Patent Box

Introduced in 2013, this new programme allows companies to pay a discounted 10% rate of Corporation Tax on profits which they can attribute to patents and other types of intellectual property. Tax incentives can be claimed in addition to any valid R&D tax credit claims.

Enterprise Investment Scheme (EIS)

Promotes investment by providing generous tax relief to individuals who invest in small unquoted trading companies. Income tax relief of 30% of the amount invested, to a maximum annual investment of £1m. No CGT is payable if you hold the shares for three years. Find out more here.

Seed Enterprise Investment Scheme (SEIS)

Launched in April 2012, the SEIS aims to encourage individuals to invest seed capital in start-ups and early stage companies. The tax incentives for participants are greater than those taking part in the EIS, with income tax relief of 50% available (up to a maximum annual investment of £100,000). No CGT is payable if you hold the shares for three years.

Venture Capital Trusts (VCTs)

Launched in 1995, VCTs enable individuals to invest in a range of unlisted early stage companies – spreading the risk. Investors in qualifying schemes may qualify for income tax and CGT reliefs. Income tax relief of 30% of the amount invested, to a maximum annual investment of £200,000. No CGT is payable on the disposal of VCT shares, subject to the annual investment limit.

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