Common UK Tax Deductions and Allowances - Small Businesses and Individuals

Two of the most common questions people ask their accountants are: What expenses can I claim for my business? and How can I pay less tax?

This article will help explain some of the most common tax deductions for UK small businesses (companies and sole traders) as well as tax reliefs which can help reduce an individual's overall tax bill.

Common Tax Deductions for UK Small Businesses (Companies and Sole Traders)

Small businesses can deduct "allowable expenses" from their business turnover to calculate taxable profit. This lowers the amount of tax needed to pay.

Allowable expenses can include such things as:

Office, Property, and Equipment Costs: Stationery, printer paper, ink cartridges, postage.

IT and Software: Laptops, computers, printers, and software used exclusively for your business.

Business Premises Costs: Rent, utility bills (gas, electricity, water), business rates, and property insurance for a dedicated office space.

Working from Home: A portion of household costs (e.g., mortgage interest or rent, council tax, heating, electricity) can be claimed. You must calculate the business use, often based on the number of rooms or hours worked. Alternatively, a "simplified expense" flat rate can be claimed.

Business Travel: Train, bus, taxi, parking charges, tolls and congestion charges.

Car and Vehicle Costs: Fuel, insurance, repairs, and servicing. If you use your personal vehicle for business, you can claim a percentage of these costs or use a simplified mileage allowance.

Accountancy and Legal Fees: The cost of hiring an accountant or solicitor for your business.

Bank Charges: Fees on a business bank account, including overdraft and credit card charges.

Insurance: Premiums for professional liability or other business insurance.

Staff and Employee Costs: Wages, salaries, bonuses, pensions, and uniforms.

Employer's National Insurance contributions.

Subcontractor and freelancer fees.

Advertising and website costs.

Memberships and subscriptions: Professional body or trade organisation fees and subscriptions to trade or professional journals relevant to the work performed.

Stock and Materials: Items you buy to resell or raw materials used to make goods for sale.

Training: Courses directly related to improving the skills used in your business (e.g. a refresher course).

(please note: this is not a comprehensive list)

Allowable business expenses include vehicle expenses, staff costs and stock and materials.

Common Tax Deductions and Allowances for UK Individuals

Examples of tax reliefs that can help employed individuals reduce their overall tax bill include:

Personal Allowance: The standard tax-free amount of income most people can earn each year before paying any Income Tax - £12,570 for 2025/26.

Note: the personal allowance is reduced by £1 for every £2 earned over £100,000.

For example, an individual with £110,000 income has a personal allowance of £7,570

(£12,570 - [(£110,000 - £100,000) / 2 ])

Pension Contributions: Tax relief is provided on contributions you make to a private or workplace pension scheme. This is a powerful way to reduce your taxable income.

Job-Related Expenses: You can claim tax relief for costs you pay for out of your own pocket that are "wholly and exclusively" for your work and are not reimbursed by your employer.

Uniforms and Work Clothing: The cost of cleaning, repairing, or replacing a uniform or protective clothing you must wear for your job.

Tools and Equipment: Repairing or replacing small tools you need for your job.

Travel: Business-related travel expenses, like public transport fares or mileage, that are not reimbursed. This does not include your daily commute.

Professional Subscriptions: Fees for professional bodies or annual subscriptions needed for your work not reimbursed.

Working from Home: A fixed weekly amount can be claimed to cover additional household costs if you are required to work from home.

Gift Aid: Donations to a registered charity under the Gift Aid scheme allow the charity to claim back the basic rate of tax and donors to extend their basic rate band.

Marriage Allowance: If you are married or in a civil partnership, and one partner earns less than their Personal Allowance, they may be able to transfer a portion of their allowance to their higher-earning partner, reducing the couple's overall tax bill.

Personal Savings Allowance: A tax-free allowance for the interest you earn on savings - £1,000 for basic tax rate payers, or £500 for higher rate tax payers for 2025/26.

Dividend Allowance: A tax-free allowance for the first portion of dividend income you receive from shares in a company - £500 for 2025/26.

Allowable deductions for individuals can include uniform costs and other job-related expenses

Key Points to Remember

• The Trading Allowance: If your total business income is less than £1,000, you don't need to register for Self Assessment. If it's over £1,000, you may be able to claim the £1,000 tax-free trading allowance instead of itemising your expenses. It's usually better to itemise if your total expenses exceed £1,000.
  

• Keep Records: You must keep accurate records of all your business expenses, including receipts and invoices, to support your tax return.
  

• Capital Allowances: For long-lasting assets you buy for your business, like a van or expensive machinery, you don't claim the full cost as an expense in one year. Instead, you claim a portion of the cost each year through "Capital Allowances."

Tax law can be complex and is subject to change. Always consult a qualified accountant or check the latest guidance from HMRC to ensure you are claiming the correct deductions for your specific circumstances.

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