You may assume that SMEs would pay comparably less corporation tax than larger businesses. However, information from accountants Moore Stephens found that they paid more in 2016.
The corporation tax paid by SMEs in 2016 was 21.7% while businesses that have a turnover of more than £1bn paid an effective corporation tax rate of 20.1%, showing a reversal of previous results.
Balance reversal
Back in 2010, SMEs paid a headline rate of 21%, which was much less than the main corporation tax rate of 28%. So, why the imbalance now?
According to Moore Stephens the main reason is a lack of understanding, advice and expertise on how to access potential tax relief. It appears that larger companies are simply more focused on identifying and subsequently claiming available tax relief than SMEs.
Tax relief under-claimed
There are several tax reliefs specifically for SMEs, including 100% Capital Allowances reliefs and Research & Development (R&D) tax credits. They are under-claimed in most instances, most likely because SME’s aren’t aware of them.
Corporation tax is headline news following constant headlines about certain multinationals avoiding paying. Companies including Vodafone, Starbucks, Google and Apple are among those named and shamed for alleged tax avoidance.
A report has recently found that 89% of people think that while tax avoidance may be legal, it’s also immoral. Around 85% think that it’s too easy for large companies in this country to avoid paying corporation tax. A quarter of people also claim to boycott services or products from companies that don’t pay their ‘fair share’. All of which shows how important it is to follow the guidelines, but that doesn’t mean SMEs can’t take steps to legally minimise the tax they pay.
What SME tax relief is available?
If you’re starting up a new business or have identified you’re missing a tax relief trick, then you need to be aware of what you could potentially claim. For example, Research and Development (R&D) tax relief for SMEs means that you could get Corporation Tax relief for expenditure in this area.
There are a range of benefits for qualifying SMEs, such as being authorised to deduct another 130% of qualifying costs from their yearly budget. In addition to the regular 100% deduction, this means a total deduction of 230%.
You can also claim a tax credit if they’re making a loss. To qualify, the company must be an SME and be able to demonstrate how its project meets the government’s definition of R&D. Check out the guide on gov.uk for more information. As a quick summary your SME must have fewer than 500 staff, and a turnover of under €100m.
Get the right advice
When you’re starting a business, it can be easy to neglect the ins and outs of potential tax relief, but it’s always worth doing. It’s such a complicated field, that it’s also easy to miss out on allowances and reliefs. Make sure you utilise expert advice and information to ensure you’re making the best tax decisions for your business.
About Turner Little
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