Understanding Tax Deductions and Reliefs for UK Small Businesses

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, and postage are all deductible.

IT and Software

Laptops, computers, printers, and software used exclusively for your business can be claimed.

Business Premises Costs

Rent, utility bills (gas, electricity, water), business rates, and property insurance for a dedicated office space are allowable.

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

Expenses for train, bus, taxi, parking charges, tolls, and congestion charges are deductible.

Car and Vehicle Costs

Fuel, insurance, repairs, and servicing can be claimed. 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 is deductible.

Bank Charges

Fees on a business bank account, including overdraft and credit card charges, can be claimed.

Insurance

Premiums for professional liability or other business insurance are allowable expenses.

Staff and Employee Costs

Wages, salaries, bonuses, pensions, and uniforms are all deductible.

Employer's National Insurance Contributions

These contributions can also be claimed.

Subcontractor and Freelancer Fees

Payments made to subcontractors or freelancers are deductible.

Advertising and Website Costs

Expenses related to advertising and maintaining a website can be claimed.

Memberships and Subscriptions

Fees for professional bodies or trade organisation memberships and subscriptions to relevant trade or professional journals are deductible.

Stock and Materials

Items bought for resale or raw materials used to create goods for sale are allowable.

Training

Courses directly related to improving the skills used in your business (e.g., a refresher course) can be claimed.

(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 is £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 made 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 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 required for your job is deductible.

Tools and Equipment

Repairing or replacing small tools needed for your job can be claimed.

Travel

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

Professional Subscriptions

Fees for professional bodies or annual subscriptions needed for your work that are not reimbursed can be claimed.

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 can 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 earned on savings is £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 received from shares in a company is £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 bought 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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