Tax relief on top 3 priority investments

Following years of recession, the economy is finally showing signs of recovery, and businesses are reporting increased trading activity.  Despite optimism, business leaders often show resistance to investment in what is considered as the 3 top priorities; new equipment, staff recruitment and training, believing the cost to be prohibitive.    A closer look may prove the real cost to be lower than expected.

When investing in new equipment, Companies no longer have to wait between 10 and 20 years to receive full tax relief on the cost.  With the Annual Investment Allowance currently £500k, companies can obtain full tax relief up to this amount in year one.  In cash terms, this saves corporation tax of between 20% and 21%, and unincorporated businesses between 20% and 40%,  lowering the real cost of investment. (For example; equipment costing £200k could reduce a company’s corporation tax liability by £42k, effectively reducing the cost of the asset to £158k)

When employing new staff, companies need to consider the tax reliefs available on the full cost (including National Insurance and  any pension contributions). Under current rates, the full cost of new employees reduce corporation tax liabilities by 20% or 21%.   In addition, the cost of any employee of a company working on qualifying Research and Developments (R&D) projects can potentially attract tax deductions of up to 47% as a result of R&D relief claims; significantly reducing the overall cost of their salary investment.

Alongside the tax reliefs associated with the cost of employing staff, where wholly business related training is also provided, there is nothing to prevent the claim of tax relief on training costs in full, with no benefit in kind implications for the employee. This again reduces a company’s corporation tax liability by between 20 and 21% of the training costs incurred.

By maximising tax reliefs, the real cost to business for investment in the three key areas of equipment, staff recruitment and training may actually turn out to be much less than initially thought.