Innovate your business and get a tax refund!

Innovate, create and profit

Here TAG Accountants, our tax advisors have seen many clients get substantial tax refunds against their costs of innovation. With that in mind, this month, we have included some of the important criteria associated with this area, and where applicable, make suggestions as to the savings that may be made.

As always, to make sure you are not missing out, please contact our office to find out more.

What are the tax incentives for innovation?

Innovation is essential for value creation, both for individual organisations and for the UK economy. Increasingly, it is the development of new ideas, processes, and technologies together with their dissemination across different business sectors that help drive economic growth and productivity.

There are many factors such as the availability of skills and capital, and government policy measures such as tax incentives that affect whether and/or how businesses innovate, one of the main incentives are R&D tax credits.

With Research and development (R&D) being the process of transforming an idea into a fully-fledged product or procedure, R&D tax credits are designed to  encourage  innovation  across multiple industries. It represents an opportunity for a business to either reduce or receive a corporation tax refund from the HMRC based on the  working  hours and relevant costs allocated by your business to  its research and development; SMEs can claim back up to 33% of any associated R&D costs.

If this is something you want to find out more about, then we can introduce you to experts in this area who can advise on whether you have costs that can be claimed and assist in preparing supporting documentation for any claim made. We have found clients are often entitled to put in claims where they had previously thought they had little, or no R&D spend.

Be aware that there are advisors out there of a more unscrupulous nature that are contacting companies promising they can deliver significant refunds by making aggressive claims. Not surprisingly HMRC is now cracking down in this area and so it is important to ensure you use a trusted and fastidious advisor in this area.

Increase in National Insurance thresholds

The UK Government used its  Spring Statement 2022 to announce an increase in National Insurance thresholds which will affect the 2022 to 2023 tax year.

This is a reminder to our clients that the threshold changes will take effect from 6 July 2022, meaning employees will pay National Insurance contributions on less of their income.

The primary threshold from 6 July 2022 to 5 April 2023 will be £242 per week or £1,048 per month, which is equivalent to £12,570 per year. This has increased from £9,880 per year.

The National Insurance lower profits limit for the self-employed has also increased. The annual lower profits limit is now £11,908 for 2022/2023, equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570, which mirrors the changes for employees.
Also, note that the self-employed are no longer required to pay Class 2 National Insurance contributions on profits between the Small Profits threshold (£6,725) and Lower Profits limit (£11,908). They are however still able to build National Insurance credits.

P11D filing deadline

It is important to tell HMRC about any Class 1A National Insurance contributions that you owe for  the tax year ending 5 April 2022  by  6 July 2022  at the latest. You must send them any P11D forms due by  6 July 2022 as failure to do so may result in a penalty. Additionally, any Class 1A National Insurance owing to HMRC must reach them by  22 July 2022.  If you need help with this, please contact us – but you need to act quickly.

Claiming tax relief on work expenses

The cost-of-living increase means it has never been more important for your employees to claim tax relief on work-related expenses. HMRC encourages employees to claim money they are entitled to using their online service.

It is worth it. As a good employer, remind employees that they can get tax relief on expenses you may not have reimbursed them for. This includes things like:

• uniforms and work clothing
• equipment purchases
• professional fees and subscriptions
• using their own vehicles for work travel (excluding their journey from home to work)
• working from home

The first step in making a claim is to check if you are eligible using the Government eligibility checker. Having checked you qualify you can make a claim using your Government Gateway account,

In short, make sure your employees do not miss out.

Switch to electric vehicles?

There are many benefits to encouraging the use of electric cars including  lower running costs, environmental advantages, and reduced noise pollution, plus of course, the tax benefits that exist to encourage their purchase in the first instance.
In fact, the benefit-in-kind (BIK) applied to electric company cars is significantly lower than its petrol equivalent. For example, most electric cars will incur  a BIK rate of only 2% in 2022-23. Compare this to a gas-guzzler pumping out 160 g/km or more of CO2 which would be based on 37% of the list price when new. Consequently, company car drivers switching to an electric vehicle should  therefore see their tax bill reduce significantly, and there are also benefits for employers who may  see a significant decrease in Class 1A National Insurance too.

Businesses purchasing electric cars should be able to recover more of their investment in tax relief in that they can write off 100% of the cost of an electric vehicle against the profits in the year of purchase with no restrictions on the value of the vehicle. The car must be new and unused to qualify for the 100% relief.

Companies using a charging point in their own business can also benefit from the super-deduction, which offers a 130% first-year allowance on qualifying electric charging points for cars and vans. This relief is available until 31 March 2023.
The road tax, or Vehicle Excise Duty (VED) rates for all fully  electric vehicles have been reduced to £0 until at least 2025, with reduced VED rates for plug-in hybrid electric vehicles (PHEVs).
Please note that there is no benefit-in-kind charge for the private use of a company van if the private mileage is insignificant and if that van is electric, there is no benefit-in-kind charge even if the element of private mileage is significant.
There are also other benefits including an EV charge-point grant that provides funding of up to 75% towards the cost of installing electric vehicle smart charge-points, up to a maximum of £350 (including VAT) per household/eligible vehicle. Finally, note that electric cars are also exempt from the London congestion charge when applying for a Cleaner Vehicle Discount.

Your Wolverhampton Tax Advisors to the Rescue!

So, if you or your team have any questions in relation to the issues raised above, just call one of our friendly tax advisors here at TAG Accountants in complete confidence on 01902 783172 or alternatively, click  HERE  to complete our online enquiry form and one of our experts will call you back.

We very much look forward to hearing from you.