How to Claim Tax Credits: A Step-By-Step Guide

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Did you know that the corporate tax rate in the UK is 19%? That is a large portion of a company’s profits.

Fortunately, the government offers tax credits to help you limit your tax liability. As tax time approaches, you want to develop your tax strategy and take advantage of every possible credit.

Keep reading to learn what the most common tax credits are and how to claim tax credits in the UK.


What Is a Tax Credit?

Tax credits are a way to let businesses pay few taxes or get a larger tax refund. It’s also a way to provide support for families and low-earners.

For example, an individual can claim a tax credit for having children to support. Tax credits for individuals are different because these are payments directly from the government to the taxpayer. These tax credits are addressed in more detail below.

From a business standpoint, tax credits and other forms of relief can be used to offset the high corporate tax rate.

These reliefs are different from a standard tax deduction. A tax deduction is when you subtract a business expense from your gross profits.

Tax credits are designed to support certain behaviors and industries. There are tax credits for research and development and relief to support intellectual property and creative industries.

Here are some of the taxes that a business can write off:


Types of Tax Credits for UK Businesses

Tax credits aren’t reserved for corporations. Small businesses can take advantage of these tax credits and deductions to lower their tax bill. These are some of the more common tax credits for businesses.

Research and Development Tax Credit

Business tax credits are designed to encourage behaviors, and this is no exception. It’s important for UK companies to stay a step ahead of the competition, which is what the R&D tax credit is supposed to do.

Your business can take a tax credit for research and development of new products and services, whether that’s for testing, staff time, and materials.

There’s a common test that’s applied to determine the eligibility is the four-pronged test:

1. Uses technology and science

2. Designed to improve part of the business – either do something new or better

3. The research and development has to help reduce uncertainty and risk

4. You have to experiment through trial and error

If your business passes the four-pronged test, then you may be able to qualify for this tax credit.

Capital Allowances

For businesses that own property, capital allowances are another common form of tax relief. You can deduct items such as business equipment and real property from your taxes.

This area is often misunderstood because many people think that it just relates to the purchase of assets and property.

You can deduct expenses for improving the property. For example, if you renovate an office space, you can deduct expenses of lights, hardware, door handles, and more.

Capital allowances can also be applied to intellectual property.


Tax Credits for Individuals

Individuals are entitled to take tax credits, too. These are some of the most common tax credits that can be claimed.

Child Tax Credit

If you’re responsible for taking care of a child under the age of 16 and the child is in school, you may be eligible for this tax credit. You can claim this tax credit if you’re working or unemployed.  

Working Tax Credit

This is for families who have or are supporting a child with a disability between 16 – 24 years old. It’s is also available to all adults over 25. You have to be employed in a certain capacity and work a number of hours each week.


How to Claim Tax Credits 
        
The instructions to claim a tax credit will differ according to the tax credit.

The applications and qualifications to claim a business tax credit are much more complex than claiming an individual tax credit. Should you need to make a claim for an R&D tax credit, you’re better off using a service like RDP Associates to work with your claim.

Now, if you’re an individual making a tax claim, you’ll need to contact the HMRC to start your claim. You’ll need to fill out an application and claim your credit.

If you’re taking the Working Tax Credit and you’re self-employed, you’re going to need to provide much more documentation.

You’ll need to provide your business records, including your profit and loss statements, your business plan, and details of your business operations.

You also have to prove that you are promoting your business. You have to provide ads such as flyers and brochures and advertisements.

You have to report any changes to your situation to HMRC. For example, if you have a change in your employment status or have another child, your claim will need to be adjusted.


Making a Claim on Your Taxes

Whether you’re an individual or a corporation, the UK’s tax system is set up to help both.

For small businesses and corporations, you can claim a variety of tax credits and deductions that will help offset your tax liability.

Individuals have generous contributions in the form of direct payments from the government. These are for the most vulnerable populations such as low-earners and families. These tax credits take the stress off of families to provide care to their children.

How to claim tax credits begins with knowing what you’re eligible to claim. That’s why you must understand what the various tax credits are. Businesses should use a tax service to correctly claim the taxes. Individuals will need to start by calling HMRC to start a claim and further learn how to claim tax credits.

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