Metaphorically too, a storm has gathered and is also battering corporate tax planning.
On one side: a blend of social and political pressure amplified by the recent economic struggles the UK has faced.
On the other: the aggressive tax planning of multi-nationals.
The two sides have collided and it has not been pretty. Some companies have been left with questions to answer with Select Committees in Parliament doing the asking.
Where does this leave the little guy?
SMEs are the engine of our economy, but amid the fallout many have been left bewildered. Scared even, to claim perfectly legitimate corporate tax reliefs. The Treasury’s latest figures show that 85% of eligible SMEs are still not claiming the R&D Tax Credits they’re entitled to
The truth is that the government is indeed using the tax system to help companies innovate and create. This is entirely legitimate – if there is a catch, it is that a company has to recognise its own innovation and put in a claim.
Genuine tax incentives for business
First let’s take a quick look at what ‘innovation’ reliefs are available:
This diagram illustrates the major reliefs. You can see what is relevant to you based on whether you are a small or large company and whether your innovation is still in development or is complete. Further information can be found on R&D tax relief and the other tax reliefs tailored towards the creative industries.
So what can SMEs do in this storm?
For SMEs caught between the fear of tax avoidance and acting upon genuine incentives here is a checklist to help them weather the storm and emerge stronger.
Step 1 is to understand there is a big difference between aggressive tax planning and using government sponsored tax reliefs. Making use of genuine tax reliefs should not be seen in any way as being underhand.
Step 2 is knowing of the existence of relevant tax reliefs: R&D, Creative and Patent Box.
Step 3 can be the most difficult. It is understanding how these reliefs can be used by your company. Sure, if you are a making a rock solid British blockbuster film it may be obvious that you could qualify for film relief. Or if you are wearing a white coat in a laboratory making medical breakthroughs, that R&D credits would probably be relevant. But it’s infrequently this cut and dry, what about the back office that develops an innovative system for processing orders? Or the Development Chef experimenting with a new menu concept? Both these cases could easily qualify for R&D tax credits and there are countless other scenarios too.
Step 4 is to speak to an R&D tax specialist who can help identify and deal with legitimate claims. Sometimes even the best accountants can struggle to identify valid claims. A specialist can come in and work independently or alongside your accountant to calculate the amount you’re eligible to.
One final thought
The government has not introduced these tax reliefs on a whim. It is part of a structured plan to encourage innovation in UK businesses and ultimately strengthen the economy. Identifying a claim can not only leave you with a potential windfall on current and recent innovation, but can also provide a stable framework for future development (around 60% of R&D claims are made by repeat claimants).
It may look stormy outside but there are very bright prospects for creative businesses that recognise their own innovation.