Essential Tax Tips For Small Businesses During COVID-19
Running a small business comes with a series of highs and lows. Success is found in the sheer determination to succeed. While you celebrate the highs, you grin and bear the lows. It’s safe to say everyone is grinning and bearing 2020 and the effects of COVID-19. There are plenty of uncertain times ahead, but one thing remains a certainty: Tax.
To help alleviate the pressure we’ve taken a look at some major players in the pandemic struggle, the top tax tips for each country, and what each respective Government is offering in way of tax relief in order to support your small business through these tough times.
The USA took out the title as COVID-19’s hotspot back in April. Since then, small businesses have been facing extreme uncertainty. Few business owners know that there are 14 types of business tax credits in the USA. It’s time for all small US businesses to take advantage of all applicable tax credits.
- General business tax credit – tax credits that encourage business owners to invest, combat climate change, and retain employees.
- Health insurance premiums tax credit – a tax credit for employers who provide health insurance.
- Paid family and medical leave tax credit – a tax credit for small business owners who provide paid leave.
- Alternative fuel tax credits – a tax credit encouraging small businesses to invest in fuels and reduce US dependence on imported oil.
- Alternative motor vehicle tax credit – a tax credit for small businesses that use alternative fuel vehicles.
- Tax credit for disabled access – a tax credit for businesses that make their premises accessible for people with disabilities.
- Employer-provided childcare facilities and services – a tax credit for businesses that directly pay for employee’s childcare services.
- Rehabilitation, energy and reforestation investments tax credits – a tax credit for businesses that invest in reforestation, alternative energy and building.
- Tax credit for qualified research expenditure – a tax credit designed to encourage research and development.
- Tax credit for small employer pension plan start-up costs – a tax credit for small business to offset the cost of starting a pension plan.
- Work opportunity credit – a tax credit encouraging employers to hire employees with significant barriers to employment.
- Empowerment zone and renewal community employment tax credit – a tax credit for hiring employees living in low-income areas.
- New markets tax credit – a tax credit for businesses that invest in community development enterprises.
- Tax Cuts and Jobs Act – a significant change to the calculations on taxable income and reduced tax rates on that income.
During COVID-19, the USA Government has introduced further tax relief, including:
Employee Retention Tax Credit
Under the CARES Act, businesses are encouraged to retain employees with a refundable tax credit of 50% up to $10,000 in wages paid by businesses impacted by COVID-19.
Coronavirus-related paid leave for workers
Small and mid-sized businesses with fewer than 500 employees are supported by the Families First Coronavirus Response Act. Tax credits are available when employees need time off to recover from coronavirus, or support a family member suffering from coronavirus.
The UK has been hit hard by COVID-19, and small businesses have had to wait out nation-wide lockdowns, hoping that their business comes out on top. There are a number of ways to decrease tax expense in the UK. Some of the largest tax credits available include:
- Annual Investment Allowance – Businesses can deduct the full value of plant and machinery assets to the value of £1million off their profits before tax at the end of the financial year.
- Small business rate relief – Small businesses with a rateable value of less than £15,000 may be eligible for a percentage deducted from their rates bill.
- SME research and development tax relief – Small to medium businesses with fewer than 500 employees are encouraged to work towards advances in science and technology by providing a tax credit on R&D expenditure.
- Creative industries tax credit – A series of tax relief options for businesses in one of the creative industries including film, television, animation, video games, theatre, museums, galleries and orchestra.
During COVID-19, the UK Government has offered further support to small businesses and self-employed citizens, including:
Coronavirus job retention scheme
Assistance for paying employee wages during COVID-19 to encourage small businesses to keep employees in work.
Paying sick pay
Employers can apply for a rebate on any employee coronavirus-related Statutory Sick Pay for up to two weeks.
Support grants and loans for small businesses
- During COVID-19, rates have been scrapped for businesses with a rateable value of £51,000.
- A £25,000 grant for retail, hospitality and leisure businesses with a rateable value between £15,000 and £51,000.
- A temporary loan scheme has been created by the British Business Bank to allow businesses to access overdraft and bank lending, with no interest for the first six months.
Australia is currently experiencing a resurgence of COVID-19. However, small Australian businesses have a number of options that will help reduce their tax bill at the end of the financial year, including:
- Making charitable donations – Donations over the year can provide tax relief to small, charitable businesses.
- Planning cash flow during the year – Businesses that estimate earnings and put cash aside ensure they have the funds available to pay their tax bill at the end of the income year.
- Taking advantage of business tax concessions – Small businesses have access to various tax concessions on Income Tax, Fringe Benefit Tax, Goods and Services Tax, Capital Gains Tax, PAYG and Superannuation.
To support small businesses through COVID-19, the Government has introduced a series of tax relief options and stimulus packages including:
Cash flow boost
A stimulus package that provides AUD$20,000 to AUD$100,000 as a credit against other taxes to businesses turning over less than AUD$50 million.
An AUD$1,500 payment subsidy is available per eligible employee for businesses that have suffered a 30% decline in turnover. Eligibility has been expanded to sole traders who may claim a AUD$550 fortnightly supplement for the next six months.
Relief for commercial tenants
Commercial tenants are supported through a series of relief options such as temporary holds on evictions, rent reductions and exemption from lease termination for those experiencing financial distress during COVID-19.
Early access to superannuation
Sole traders and small businesses experiencing a 20% reduction in turnover can withdraw funds from superannuation to support themselves through COVID-19.
Wage subsidy for apprentices and trainees
A subsidy of 50% of an apprentice or trainee’s wage is available to eligible employers until 1 September 2020.
New Zealand’s quick response to COVID-19 means the country has experienced far fewer cases than many other parts of the world. However, with a four-week lockdown and ongoing restrictions, small businesses have suffered significantly.
For New Zealand small business owners, the easiest way to reduce tax expenses, pay tax on time, and free up cash flow are:
- Claiming expenses – any business-related expenses may be tax-deductible, including vehicles, depreciation and home offices for self-employed.
- Hiring a Tax Agent – New Zealand Tax Agents know all the tricks of the tax trade. With their help, small businesses can streamline the entire returns process, maintain sound recordkeeping and reduce their tax bill wherever possible.
- Tax pooling – New Zealand’s provisional tax scheme enables businesses to make instalments towards their tax bill throughout the year to avoid an overwhelming bill come tax time. Tax pooling allows businesses to pay their provisional tax instalments into a ‘pool’ managed by an IRD-approved intermediary, freeing up cash flow and avoiding the possibility of underpaying or overpaying.
During COVID-19, New Zealand has pulled out all the stops to help small businesses with tax and stimulus relief. This includes:
Small businesses with a revenue loss of 40% for a 30-day period may be eligible for a wage subsidy of NZD$585.80 for full-time employees and NZD$350 for part-time employees.
Small business cash flow loan scheme (SBCS)
Small businesses adversely affected by COVID-19 may be eligible for a one-off loan of up to NZD$10,000 plus NZD$1,800 per full-time employee with a term of five years.
Loss Carry-Back scheme
Businesses expecting to make a loss in 2020-2021 can carry that loss back to the preceding year, helping to reduce some uncertainty in the coming income year.
Provisional tax threshold increase
The provisional tax threshold has been increased from NZD$2,500 to NZD$5,000. Businesses with a provisional tax bill of under NZD$5,000 will have until 7 February, 2021 to pay their tax bill.
Support is available, so seek it out
If you’re a small business owner in the USA, UK, Australia, or New Zealand, you’ll see there are many ways to reduce your tax expenses in 2020. Ensure you’re receiving the credits and relief options applicable to your business and improve cash flow during COVID-19. Good luck!