Tax reliefs for startups – What should you know?

The journey of starting and nurturing a business from its infancy is both exhilarating and challenging.

In the UK, recognising the importance of startups in driving economic growth and fostering innovation, the Government has introduced several tax reliefs and incentives.

If you're a budding entrepreneur, understanding these reliefs can significantly benefit your startup's financial health.

Seed Enterprise Investment Scheme (SEIS)

The SEIS is designed to help startups raise equity finance by offering significant tax reliefs to individual investors who purchase new shares in those startups.

1. Income Tax relief: Investors can claim back 50 per cent of their investment against their income tax bill, up to a maximum of £100,000 per tax year.
2. Capital Gains Tax exemption: If the shares are held for at least three years, any profit made when selling the shares is free from Capital Gains Tax (CGT).

Enterprise Investment Scheme (EIS)

Similar to SEIS but for slightly larger companies, EIS provides tax reliefs for investors who buy shares in a startup.

1. Income Tax relief: Investors can get back up to 30 per cent of their investment against their income tax bill.
2. Capital Gains Tax exemption: Again, shares need to be held for a minimum of three years for this exemption.

Research & Development (R&D) tax credits

Startups often invest a significant portion of their capital into research and development.

The Government offers R&D tax credits, allowing companies to claim back a part of their R&D expenses against their corporation tax, even if they aren't making a profit yet.

Business Asset Disposal relief

When you decide to sell your business, if you've owned it for at least two years, you might qualify for Business Asset Disposal relief.

This relief reduces the CGT rate to 10 per cent on the first £1 million of gains.

Patent box

Innovative startups that have patented products can benefit from the Patent box regime.

Companies can apply a reduced rate of Corporation Tax (10 per cent) to profits earned from their patented inventions.

Business rates relief

Certain startups, especially those in the retail, hospitality, and leisure sectors or in rural areas, may be eligible for a reduction in their business rates.

Local councils provide this relief.

Employment allowance

Startups can reduce their National Insurance bill by up to £4,000 with the Employment Allowance.

It's particularly useful for startups looking to expand their team.

VAT relief

Startups with a turnover of less than £85,000 don't have to register for VAT.

Those with a turnover just above this threshold can benefit from the Flat Rate Scheme, simplifying their VAT reporting.

For more advice on startup tax reliefs, get in touch with us now.