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

Business tax relief – 11 ways to lower your tax bill

1. Employment Allowance (National Insurance relief)

If you’re an employer, you may be entitled to National Insurance relief of up to £5,000 (the total allowable relief for each business, not for each employee).

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.

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 are also eligible.

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.

2. Annual Investment Allowance

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

The government increased the Annual Investment Allowance (AIA) cap to £1 million between 1 January 2019 and 31 March 2023.

Keep in mind that if you use cash basis accounting, you won’t claim capital allowances (except on buying cars).

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.

Full expensing replaces super deduction capital allowance

The super-deduction, first announced in 2021, came to an end on 31 March 2023.

It’s now been replaced by a full expensing capital allowance – as announced in the Spring Budget.

It’s got 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 on qualifying plant and machinery investments. 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

3. 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.

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.

4. 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.

There’s a specific part of the scheme for small businesses, SME R&D relief – although from April 2024 this will be merged with the R&D expenditure credit scheme.

This lets you:

• deduct an extra 130 per cent of your qualifying costs from your annual profit, as well as the normal 100 per cent deduction, to make a total 230 per cent deduction
• claim a tax credit if your company is making a loss, worth up to 14.5 per cent of the surrenderable loss

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.

5. 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.

6. 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

7. 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.

8. 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 and the main rate.

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.

9. 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).

Am I eligible?

The government website details all the qualifying criteria for claiming BADR.

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.

10. 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.

11. 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.

Self-employed tax deductible expenses

Whatever your business legal structure – sole trader, limited company, or partnership – it’s important to make sure you’re claiming everything you’re entitled to on your Self Assessment tax return.

For more on the expenses you can subtract from your business turnover to work out your taxable profit, read our guide to self-employed tax deductible expenses.

Guides for small businesses and the self-employed

• Self Assessment and tax resource
• Important tax year dates and deadlines
• What type of business insurance do I need?

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