Essential tax relief for smaller businesses

Businesses have to pay a number of different taxes, from Corporation Tax and Income Tax to VAT.

Without careful accounting, these tax liabilities can negatively impact your smaller business's bottom line.

The tax your business will need to pay depends on several factors, including how it is set up and whether or not you have employees.

Many smaller companies, however, can benefit from tax relief, depending on their business activities and circumstance.

For example, you may pay less tax or can claim rebates against activities such as money spent on research and development if your business specialises in innovation.

Other tax relief schemes, such as accounting for 100% of the cost of purchasing a new electric vehicle against company profits, can reduce the corporation tax your business needs to pay.

Reducing your tax liability can be a helpful way to ease financial pressure, and you can use the extra cash to help grow the business.

It can be a good idea to seek professional financial advice from an independent financial advisor or accountant to identify what tax breaks are available for your business.

Read our guide to managing business debt for further advice and guidance on cash flow.

What is a tax relief?

Also known as tax break, a tax relief is a way to reduce your tax liability and pay less tax.

Businesses can reduce their tax payments depending on the type of business, how they spend money, and the investments they make.

Tax relief may encourage particular business behaviours or investments, such as:

• donating to charity
• developing creative outputs and works
• investing in innovations and green technologies
• updating fleet vehicles to electric vehicles.

Read our guide to electric vehicles for smaller businesses.

Tax relief may be industry-specific or dependant on business structure, such as operating as a social enterprise.

With all tax relief, your business may need to meet specific criteria before being granted the relief.

Tax relief for smaller businesses

While not an exhaustive list, here are a few tax breaks you can consider.

Speaking to an independent financial advisor to identify tax breaks that your smaller business can use may be a good idea.

Small Business Rate Relief

Many businesses are charged a business rate by the local council.

Small business rate relief (SBRR) is a tax break depending on the rateable value of your business property or premises.

You may be eligible for the relief if your premise's rateable value is less than £15,000 and if you only use one property for your business − although you may still be able to claim some relief if you have multiple properties.

You will not need to pay business rates if your business property has a rateable value of £12,000 or less.

Between £12,001 and £15,000, the relief is on a sliding scale from 100% to 0%.

Find out more about SBRR and contact your local council to apply for the relief.

Annual Investment Allowance

Annual Investment Allowance (AIA) allows you to deduct the costs of plant and machinery, from your business profits before paying tax.

You can claim only up to a certain amount.

Items you can claim include:

• items you keep to use in your business, such as computers
• integral features – parts of a building considered integral include as lifts, lighting and heating systems
• some fixtures, for example, staff bathrooms and canteen facilities.

You can also claim AIA for business vans but not for business cars which can be covered by other allowances.

Employment Allowance (National Insurance relief)

As an employer, you may be able to reduce your National Insurance bill by up to £5,000 a year by claiming Employment Allowance.

This means you pay less employers’ Class 1 National Insurance each time you run your payroll until you reach the £5,000 threshold or the tax year ends, whichever is sooner.

From April 2025 the threshold will be £10,500. 

You can claim Employment Allowance if you're a business or a charity with employers Class 1 NI liabilities of less than £100,000 in the previous tax year.

From April 2025, the £100,000 limit will no longer apply.

Find out more about Employment Allowance.

Research and Development (R&D) tax relief

The R&D tax relief supports UK companies working on innovative projects and research to advance the publicly available knowledge base of a qualifying field of science and technology. 

The relief can only be for research focusing on science and technology related to the company’s existing business or one they intend to start up based on the results of the R&D.

Your business can also claim a tax credit, even if the business is loss-making.

It's worth noting though that not all science and technology is covered in the relief, so be sure to check ahead of claiming.

Find out more about the Research and Development tax relief.

Charity donations

Businesses can gift money, equipment, shares in another company, and even provide employee time and expertise to charities.

These costs may be offset against profits, reducing corporation tax.

Different rules apply for sole traders and individuals in partnerships where deductions from business profits are only available in limited circumstances, but you may get Gift Aid relief for a personal cash donation.

Find out more about charity donations and tax relief for limited companies.

Creative Industry Tax relief (CITR)

The Creative Industry tax relief is designed to encourage investments in the creative industries.

Similar to R&D tax relief, CITRs allow development and production within specific creative areas to be eligible for deductions in corporation tax, such as:

• video games
• high-end television programming
• children's television programming
• museum or gallery exhibitions
• film production
• orchestral concerts
• theatrical productions
• animation television.

Find out more about CITR.

Further tax relief schemes

Other schemes that may benefit your business include:

• The Patent Box Scheme – encourages innovation and development of new patented products in the UK
• Marginal Rate Relief - can reduce your Corporation Tax bill from 1 April 2023 if your company’s profits are lower than £250,000
• Structures and Buildings allowance - for those who build, buy, or lease a structure and all construction contracts were signed on or after 29 October 2018
• Capital Gains reliefs including Incorporation Relief, Roll Over Relief, Gift Hold Over Relief, Business Asset Disposal Relief
• Seed Enterprise Investment Scheme – can help you raise money for your business by offering tax relief to investors.