Funding sustainable business growth is rarely simple.
Most companies rely on external funding to fuel expansion, whether in the form of debt, which can be difficult to access and carry hefty interest, or private equity which usually involves ceding a proportion of control of the company to someone else.
So it makes sense to maximise the amount of growth that can be funded through the company’s own revenue streams first.
The obvious way to do this is through more sales or efficiency savings, reducing costs and therefore increasing profit margins, neither of which are simple and easy. Sales are competitive and may require additional investment both to secure and then carry out the work. Efficiency can leave staff overstretched or stressed and compromise can affect the quality of the end product or service.
However, many businesses aren’t making the most of what they’ve already done.
The government has put in place a series of financial incentives to reward and encourage innovation and business investment across all sectors.
Research and Development (R&D) tax credits
The HMRC definition of R&D is any work that seeks to resolve a ‘scientific or technological uncertainty’ in the form of a new process, product, service or an improvement to an existing one.
This can apply to a broad range of work and the R&D does not need to have been successful to qualify.
The majority of companies are potentially eligible for R&D tax relief — nearly eight in ten according to our research. Yet more than half of them have never made a claim, the same survey showed.
Many business leaders do not realise their company is eligible for this tax relief while others don’t know how to go about claiming, or fear it will be too expensive or time consuming.
With the average R&D claim worth £54,000 a year, it is worth some time and effort.
If your business has developed a new product, service or process in the past two years, seek professional advice from a tax relief expert.
The Patent Box
The Patent Box tax relief was rolled out from 2013 to reward income made from patents with a reduced rate of corporation tax of just 10% — nearly halving the rate of corporation tax payable on intellectual property (IP) related income.
Yet take up of this valuable tax break remains very low with more than half of firms never having heard of the Patent Box, our research showed.
If your company has registered patents, you should immediately look into how much of your income is generated by them in order to reduce your tax bill. The Patent Box applies to revenue deriving from patents in many different ways so it is best to seek out expert advice.
It is also worth carrying out a full IP audit which will establish whether anything else could be patented to maximise Patent Box savings.
All UK taxpayers who own commercial property — either personally or through a company — may be eligible for capital allowances tax relief.
This offsets all the hidden expenses associated with the property such as air conditioning, wiring, heating, lighting and security systems against your overall tax bill.
It is designed to incentivise investment in commercial premises but a quarter of firms remain unaware they can claim, our research found.
The eligibility and value of capital allowances claims vary according to many criteria and these tax rules are being constantly updated.
The most common mistake we find is companies failing to claim everything they are entitled to, as they are not aware of everything that is eligible or how best to optimise their claims.
The average claim totals around £48,000 a year, so it is worth taking the time to make a full and correct claim.
This usually requires a detailed assessment of the company’s assets by someone who understands the regulations and categories in detail.
Since 2008, we’ve helped 14,000 firms claim back a total of £230 million using research and development tax credits, capital allowances and the patent box tax relief.
Every pound would have strengthened those businesses and reduced the need to borrow. It’s vital every firm ensures they are not missing out.
By Mark Tighe
Mark Tighe is founder and CEO of specialist tax relief consultancy Catax.
He launched the company in 2008 and has since built it to a £11.3m turnover business, employing 100 people across five offices in the UK and Canada.
Prior to founding Catax, Mark was managing director of Carphone Warehouse and head of UK business sales at O2 UK.
Having spotted a gap in the market and built one of the UK’s leading specialists in Capital Allowances, Research & Development and the Patent Box tax relief as well as Remediation of Contaminated Land, Mark regularly presents to many of the top law and accountancy firms across the country, educating professionals on these complex areas of this tax relief.
Kizzi Nkwocha is the editor of Business Game Changer Magazine and publisher of The UK Newspaper, Money and Finance Magazine, the net’s fastest growing wealth creation publication. Kizzi Nkwocha is chair of The Ethical Publishers Association and co-chair of The Logistics Association. Kizzi made his mark in the UK as a publicist, journalist and social media pioneer. As a widely respected and successful media consultant he has represented a diverse range of clients including the King of Uganda, and Amnesty International. Nkwocha has also become a well-known personality on both radio and television. He has been the focus of a Channel 4 documentary on publicity and has hosted his own talk show, London Line, on Sky TV. He has also produced and presented both radio and TV shows in Cyprus and Spain.