Five tax tips aimed to help manufacturers with tax planning ideas.
Research & Development Tax CreditsR&D tax reliefs offer a reduction in corporation tax liabilities for companies which are making ‘appreciable’ improvements to technology – for instance, this can mean producing something in a more efficient way, or making something cheaper, lighter, faster. This could also include process improvement for, say, a manufacturing process.
The potential benefits of the R&D scheme can be significant. As an illustration, £100,000 of identified qualifying costs (including staff salary costs, materials, subcontractor costs) can lead to a tax reduction of almost £25,000.
Loss-making companies can further benefit from this generous scheme by surrendering losses generated by the R&D activities in return for a cash repayment from HMRC.
Accelerate Tax Relief Through Capital Allowances
The Annual Investment Allowance (AIA) allows businesses to claim 100% of the cost of plant and machinery purchased each year as a deduction from taxable profits, subject to a £200,000 cap. Consider the timing of making purchases to maximize tax savings. If you have already spent £200,000 in the current accounting period, could you defer any further expenditure until the next accounting period? Can you bring forward any capital expenditure to take advantage of the higher 19% rate of corporation tax relief before it reduces to 17% in April 2020?
Doing Business Overseas
Keep track of annual sales overseas to non-business customers, if the turnover threshold is exceeded you may have register for VAT in that territory.
It can be easy to overlook the requirements of overseas tax authorities when trading overseas. Consider the following:
- Are you making sufficient sales to one particular country that you are required to register for VAT in that territory?
- Do you employ workers from overseas and are you making the correct declarations?
- If you have any overseas premises or have representation overseas, you may be liable to pay corporation tax in that territory.
Hidden Tax Relief in Commercial Property
Buildings and structures do not generally qualify for tax relief which means a lot of tax relief goes missing when purchasing or improving commercial properties. Your industrial building could hold up to 30% of expenditure eligible for capital allowances. It is literally hidden within the walls! Shorts have a number of experts in this area who can help you by undertaking expenditure reviews and building surveys to identify eligible expenditure, allowing you to maximize your claim for tax relief.
Tax Efficient Reward and Retention of Key Employees
It can be difficult to retain key employees without breaking the bank but by offering share options, such as Enterprise Management Incentive (EMI) schemes, you can encourage and reward key members of staff in a tax efficient way for both the company and the employees.
While we hope this gives you food for thought, tax planning should not be undertaken without taking the appropriate advice. Anyone wanting to discuss any of the points raised above can contact a member of Shorts’ tax team for a free initial consultation by calling 0114 2671617 or emailing info@shorts.uk.com
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David Robinson
As a Tax Partner, I advise clients on all aspects of UK tax, ranging from business taxes, transactions and private client matters, helping to achieve the objectives and aspirations of businesses and their owners.
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