Small business tax relief – a guide to reduce your tax bill

When you run your own business, it’s always worth exploring ways to ease the financial burden.

Although there are plenty of bills to pay, there are a number of ways you can recoup some of the tax you pay.

From ISAs and capital gains tax to the Employment Allowance and business rates, we’ve pulled together a range of business tax reliefs and personal allowances you can claim to help you work out if you can reduce your tax bill.

Some allowances and reliefs reset at the end of each tax year (5 April), so it’s important to take advantage before the new financial year starts on 6 April.

• Personal tax reliefs and allowances
• Small business tax reliefs and allowances
• Tax reliefs and allowances for limited companies

Personal tax reliefs and allowances

ISA allowance

Each tax year, you have an Individual Savings Account (ISA) allowance. For the 2024-25 and 2025-26 tax year, the ISA allowance is £20,000.

You can use an ISA to save money or invest and you don’t pay any tax on the gains you make. 

The annual ISA allowance is ‘use it or lose it’, which means you need to invest up to the maximum allowance before the end of the tax year (5 April) to get the benefit. 

It’s been rumoured that the government is considering reducing the ISA allowance from April 2026, so it’s worth taking advantage of the £20,000 limit while you can.

Read more: How the tax-free allowance and income tax work

Capital gains tax allowance

If you sell an asset that’s increased in value, you may have to pay capital gains tax (CGT). 

Each year, you have a capital gains tax allowance of £3,000 – meaning you only pay tax on any gain above this value.

If you’re planning to sell assets such as shares, it could be worth splitting the sales over two tax years, so you can use your full £3,000 CGT allowance each time. 

For those planning to sell a business, you can use Business Asset Disposal Relief, which we cover in more detail below.

Small business tax reliefs and allowances

Employment Allowance (National Insurance relief)

If you’re an employer, you may be entitled to National Insurance relief of up to £5,000 for the 2024-25 tax year.

Claiming Employment Allowance lets you pay less employers’ Class 1 National Insurance every time you run your payroll until you reach the £5,000 threshold or the end of the tax year, whichever is sooner.

For the 2025-26 tax year, the Employment Allowance will increase to £10,500 a year.

Which businesses are eligible?

• those with employees
• those that pay Class 1 employers’ National Insurance
• those with employers’ Class 1 National Insurance liabilities of less than £100,000 in the previous tax year
• charities

Which businesses aren’t eligible?

• limited companies with only one company director and no other employees
• self-employed contractors and freelancers who only pay Class 2 and Class 4 National Insurance, and not Class 1

How do I claim?

There are two ways:

• download HMRC’s Basic PAYE Tools
• use your own payroll software – enter ‘yes’ in the ‘Employment Allowance indicator’ box next time you send an Employment Payment Summary (EPS) to HMRC

You’ll need to claim every tax year. You can read all the details on the government website.

Read more: Employer National Insurance: rates and thresholds for small businesses

Annual Investment Allowance

The Annual Investment Allowance (AIA) is a type of capital allowance that lets you deduct the costs of plant and machinery from your profit when paying tax.

The AIA cap has been set at £1 million since 1 January 2019.

Am I eligible?

Items eligible for the Annual Investment Allowance (AIA) include:

• things you keep to use in your business, including cars and computers
• costs of demolishing plant and machinery
• parts of a building considered integral, known as ‘integral features’
• some fixtures – for example, fitted kitchens or bathroom suites
• alterations to a building to install other plant and machinery (not including repairs)

Read more about capital allowances and the Annual Investment Allowance.

How do I claim?

You claim for AIA on your Self-Assessment tax return, your partnership tax return, or your company tax return.

The super-deduction came to an end on 31 March 2023. It’s now been replaced by a full expensing capital allowance.

It has specific eligibility criteria, but from 1 April 2023 to 31 March 2026, limited companies investing in qualifying new plant and machinery can get a 100 per cent first-year relief capital allowance. The government says that this lets companies cut their tax bill by up to 25p for every £1 they invest.

There’s also a 50 per cent first-year allowance.

Read more about full expensing capital allowances.

Business rates relief

Some business premises can get business rate discounts from local councils. There are different schemes available depending on your business.

For example, the small business rate relief is available if your property’s rateable value is less than £15,000 and your business only uses one property.

Another business rates relief is the enterprise zone, which could be useful if you’re relocating or just starting out. Working in an enterprise zone can give you up to £55,000 a year over five years in business rate relief. There are 48 enterprise zones across the UK.

Other business rate reliefs include the rural rate relief and charitable rate relief.

One of the most used types of business rates relief is for retail, hospitality, and leisure businesses. For the 2024-25 tax year, you can claim relief of up to 75 per cent. However, this is dropping to 40 per cent for the 2025-26 tax year.

Am I eligible?

You have to contact your local council to see whether you’re eligible for a particular scheme. It’s best to look at all of the business rate reliefs available and work out whether there are any you can apply for.

How do I claim?

You should speak to your local council about claiming business rate discounts.

Read more about business rates.

Business Asset Disposal Relief

You may be able to reduce your capital gains tax bill when you sell your business by claiming Business Asset Disposal Relief (BADR).

BADR allows you to pay 10 per cent tax on all gains that qualify when you sell a business.

Am I eligible?

The government website details all the qualifying criteria for claiming BADR (formerly known as Entrepreneurs’ Relief).

How do I claim?

You can either claim on your Self Assessment tax return or by filling in the government’s Business Asset Disposal Relief help sheet.

Tax reliefs and allowances for limited companies

Research and development tax relief

Claiming research and development (R&D) tax relief for business could be an option if you’re a limited company and work on innovative science and technology projects.

The project doesn’t actually need to be successful to qualify you for the relief – it just needs to aim to research or develop and advance in your field.

• if your accounting period started before 1 April 2024, you can claim R&D tax relief
• if your accounting period started on or after 1 April 2024, you can claim on the Research and Development merged scheme

Am I eligible?

You can claim small and medium sized enterprises (SME) R&D relief if you have:

• fewer than 500 staff
• a turnover of under 100 million euros or a balance sheet total under 86 million euros

You may need to include linked companies and partnerships when you work out whether or not you’re a small or medium sized enterprise.

Gov.uk says that for work to qualify for relief, you should explain how it:

• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• could not be easily worked out by a professional in the field

How do I claim?

You claim it on your corporation tax, so you’ll also need to have a limited company to be eligible.

Read more about R&D tax relief.

Creative industries tax relief

Creative industry tax relief for businesses is made up of the following eight corporation tax reliefs:

• Film Tax Relief
• Animation Tax Relief
• High-end Television Tax Relief
• Video Games Tax Relief
• Children’s Television Tax Relief
• Theatre Tax Relief
• Orchestra Tax Relief
• Museums and Galleries Exhibition Tax Relief

Am I eligible?

The government website says: “Your company must have responsibility throughout development, from the start of pre-production until the completion of the film, programme or game.

“For theatrical productions, orchestral concerts or exhibitions, the company must be responsible for producing, running and closing the production.”

You’ll also need to pass the British Film Institute’s (BFI) cultural test, which requires all films, animation and television programmes or video games to be certified as British.

How do I claim?

You can claim it as a tax deductible expense on your company tax return.

Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme is a venture capital scheme that helps new companies raise money, as long as you use it for a ‘qualifying trade’. It gives investors tax reliefs when they buy new shares in your company.

Am I eligible?

You need to have a limited company to qualify for this type of tax relief. You can read more about the Seed Enterprise Investment Scheme and whether your business qualifies in our article.

Most trades will qualify, with some exceptions – your business activity shouldn’t include more than 20 per cent of those non-qualifying trades.

How do I claim?

Follow these steps to claim for the SEIS:

• complete a compliance statement (SEIS1)
• send the form with all the relevant accompanying documentation to HMRC
• if your application is successful, you’ll receive compliance certificates from HMRC
• issue the compliance certificates to your investors
• your investors can then claim tax relief on their investments in your company

Read more: Small business funding and investment: how to grow your business

Enterprise Investment Schemes

In some ways, the Enterprise Investment Scheme is similar to SEIS. The part to watch out for is the risk clause, which we’ve simplified in our simple guide to EIS funding. In it you’ll also find more about the eligibility rules.

Am I eligible?

Find out more about the eligibility criteria for EIS in our article.

How do I claim?

You can apply by filling out the compliance statement EIS1 form available on the government website. You then need to send it to HMRC.

Marginal Relief

If you run your own limited company, you may be able to apply for Marginal Relief to reduce your corporation tax bill. It gives you a gradual increase in your tax rate between the small profits rate (19 per cent) and the main rate (25 per cent).

Am I eligible?

To qualify for this relief on your corporation tax, your company’s taxable profits from 1 April 2023 are between £50,000 and £250,000.

How do I claim?

You can apply for this relief in your Company Tax Return, and you have up to 12 months from filing a return to amend it to claim for Marginal Relief.

The Patent Box

If you run your own company, the Patent Box may mean you can apply a lower rate of corporation tax to your profits on any patented inventions you have.

Am I eligible?

Your company will need to:

• be liable to corporation tax
• make a profit from exploiting patented inventions
• own or have exclusively licenced-in the patents
• have undertaken qualifying development on the patents

Read more about these criteria and the full list of rules on the government website.

How do I claim?

You can find out more about how Patent Box calculations work by reading the example on the government website.

Charity donations

You may be able to reduce your corporation tax bill if your business donates time or resources to charities.

This can include financial donations as well as equipment and stock, shares, or employee time and skills.

For example, you could organise a team volunteering day with a local charity – and this is also a great employee benefit to keep your people happy and engaged at work.

How do I claim?

Limited companies can deduct charity donations from your profits and include in the Qualifying donations’ box on your tax return.

Sponsorships should be deducted as a business expense. Meanwhile, equipment donations should be claimed as capital allowances.

Please use this article as a guide only and speak to a professional adviser or accountant if you’re not sure about anything.

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