Recent research reveals that small firms in the UK are paying a higher percentage of their turnover in corporation tax than their much larger peers, possibly because they are unaware of the tax reliefs on offer.
According to the study, small and medium-sized enterprises (SMEs) in the UK paid 21.7 per cent of turnover in 2016, compared with businesses with turnover of more than £1 billion, who paid 20.1 per cent. This is a marked change from the state of affairs in 2010 when SMEs paid a headline rate of 21 per cent compared with the 28 per cent paid by large concerns.
The change might be because compared with big businesses, small firms lack the manpower, expertise and advice when it comes to identifying and claiming the current available tax reliefs.
Proof of this is that there are many reliefs aimed specifically at SMEs, such as Research and Development (R&D) tax credits and 100 per cent Capital Allowances, but these are woefully under-claimed.
While there was an increase of 19 per cent in R&D tax credits from the 2014-15 tax year to the year after, many firms are still missing out even though almost any business in any industry is eligible, as long as they are undertaking development activities to achieve an advancement in science or technology. Similarly, firms are missing out on an enhanced capital allowance, which covers up to 100 per cent of its investment in plant and equipment.
As the report points out, not claiming legitimate relief is costing small firms a fortune in corporation tax and if it is simply a matter of lack of awareness or the expertise to make the claims, they should seek professional help.