Petty cash... R&D allowances at risk

⬤ Tax advisers fear that chancellor Rishi Sunak could overhaul the research and development (R&D) tax credits system later this year, partly because too few smaller companies are claiming the support. So the onus is on small businesses to make better use of the scheme to secure valuable tax incentives for innovation while they’re still available, but also to persuade the chancellor it is worth sticking with them.

Smaller companies can claim a 230% deduction on qualifying R&D expenses (the definition of which is much wider than is often understood). So £100 worth of R&D expenses will help a business cut £230 from its profit before taxes, reducing its overall tax bill.

⬤ Accountants say as many as 500,000 businesses could benefit from an increase in the Employment Allowance, which comes into effect this week. Under this initiative, eligible businesses do not have to pay employers’ national insurance contributions up to a certain threshold, reducing their overall tax bill. The threshold rose from £4,000 to £5,000 on 6 April, the equivalent of enabling firms to employ four full-time employees on the national living wage without paying employers’ contributions.

⬤ Just 32% of English councils have begun distributing government Covid-19 support to eligible small businesses, new research shows. The Covid-19 Additional Relief Fund is a £1.5bn pot of cash aimed at businesses hit by the pandemic that have not had other support through discounted business rates. But confusion over eligibility criteria has delayed distribution. Contact your local authority if you believe your business could be eligible.