Top 25 Small Business Tax Deductions

Usually, the business owner wants to save money – and small business tax deductions are the best way to do exactly that.

Many businesses unnecessarily pay additional tax each year because legitimate tax deductions go unclaimed. 

Claiming legitimate deductions is an essential tax-saving strategy for small businesses.

Proper tax planning can ensure that you are taking advantage of all deductibles available to your small business.

By legally claiming the tax-deductible business expense, your business may owe less in taxes — sometimes even much less.

That’s why read on to know some common 25 small business tax deductions to save more tax.

1. Home office expenses

Small business owners who regularly work from home can claim a small tax deduction of £6 per week (£4 per week before 06 April 2020) without keeping receipts, itemised bills and other documentation.

If you don’t want to claim the above allowance, you can claim an appropriate proportion of household bills as a business expense, including council tax, heating and lighting costs.

Here, the proportion usually is based on your home office’s square footage, the number of rooms in the house, excluding bathrooms, toilets, kitchens, and hallways.

So, for a typical small business in the UK, the £6/week home office allowance represents the potential tax saving of £124.80 a year.

2. Office equipment costs

Small business can deduct the cost of computing, manufacturing and office equipments.

This includes the cost of computers, scanners, printers, fax machines, computer software, chairs and office desks.

Before calculating the business’s tax bill, to prove that provided equipment is purchased in the business’s name, you’ll need to have the invoice and receipts.

A small business can claim these deductions under its Annual Investment Allowance (AIA), which allows up to £1 million currently of plant and machinery deductions each year.

3. Writing down allowances

In case you have already claimed Annual Investment Allowance up to the threshold of £1 million, instead, you can claim a portion of the value as Writing down Allowances.

Writing down allowance can also be used if the item doesn’t qualify for AIA, such as gifts, cars or items you owned before using them for your small business.

4. First-year allowances

If you are starting up your small business, you can qualify for first-year allowances on newly purchased equipment.

These allowances don’t count towards your Annual Investment Threshold.

This is also known as an Enhanced Capital Allowance (ECA) & can be used for water and energy-efficient equipment.

5. Business travel and Subsistence

Any small business-related travels outside your normal commutes, such as journeys to client meetings, or trips to interview new hires or meet with suppliers, travel to conferences or professional development workshops, are generally tax-deductible.

Small business owners can deduct the below travel expenses before calculating their Corporation Tax bill,

• Train, air, bus or taxi fares.
• Car parking, car hire, road tolls and the London congestion charge
• Subsistence expense when you’re away from your workplace
• Hotel and overnight subsistence expense if you’ve to stay away from home regarding business

Incidental Overnight Expense (IOE)- for overnight stays in the UK £5 can be deducted for IOEs such as laundry and dry cleaning, phone calls, Wi-Fi charges etc.

In the case of overseas travelling IOEs, allowance increases to £10 a night.

6. Business mileage expense

Suppose you are a small business owner and use a privately-owned vehicle for business travel. In that case, you can claim a specified amount per mile as a tax-deductible—currently 45p for the first 10,000 miles and 25p after that.

The main exception for mileage expense is the commute to a regular workplace, which is excluded from this tax break.

It’s worth pointing out that any fines such as speeding fines or parking fines are not tax-deductible, so drive carefully!

7. Office landline

The landline phone cost at the office is generally fully tax-deductible if provided the bills are issued to the small business rather than the business owner.

8. Mobile phone

If a phone contract is in the business’s name and not for personal use, then the contract’s total cost is tax-deductible.

9. Home landline

If a small business owner uses a landline phone in the home to make business calls, then the cost of those specific calls is tax-deductible.

Some other charges, including the cost of line rental for the landline, cannot be claimed.

10. Broadband

If the broadband account is in the business name and any private use is not significant, then the fees are fully tax-deductible.

11. Advertising and marketing cost

A small business owner can fully deduct expenses related to promoting his small business.

This includes digital and print advertising, website design and maintenance and the cost of printing business cards.

12. Professional services cost

Professional service fees related to your small business’s functioning, such as accounting, bookkeeping, and legal services, are deductible for tax purposes.

If you use bookkeeping or accounting software for your small business, that also for a tax deduction.

If you have confusion in selecting small business accountants or bookkeepers for your business, read our blog How to choose an Accountant, Bookkeeper or a Tax advisor?

13. Childcare costs

A small business owner can also claim childcare cost.

For instance, if you run a crèche at your office premises which is available for all employees’ children, the cost will be tax-deductible, and there will be no tax Benefit for you if your own children use it.

14. Pension contribution

An employer’s contribution to a pension scheme can provide significant saving for the employee and the employer.

If you have a company pension scheme, make the most of it – it’s a highly tax-efficient way to reward & retain key staff.

15.  R&D tax credit

Small businesses engaged in Research & Development activity can apply for tax relief on qualifiable R&D expenditure.

To claim this relief, you’ll need to explain how your research project relates to your small business and how it seeks advanced capability in a field of technology or science.

It doesn’t matter whether the business is profitable or loss-making. HMRC recently changed the rules surrounding qualifiable expenditure and linked it to NIC contributions.

16. Creative industry tax reliefs

If your small business is involved in the creative industry, you can claim Creative Industry Tax relief to deduct tax.

To be qualified for this small business tax deduction, you’ll need to pass a cultural test administered by the British Film Institute.

Films and plays can deduct up to 80% of expenditure, while video games, television activities, and animation can reduce up to 100%.

Creative industry tax relief claims must be filed with your small business tax return.

17. Finance costs

You can claim interest on business loans, overdraft as a tax-deductible expense. An example would be the interest charged on the Government Business Bounce Bank Loan (BBL).

Remember, you can only claim interest as an expense and not the entire loan repayment.

18. Education and staff training

Keeping your team up to date with the industry changes is necessary for many businesses. All costs incurred on work-related training, seminars, course material is a deductible business expense.

19. Employment allowance deduction

If your small business pays National Insurance for your employees, you can claim up to £4,000 /year.

Use the Employers National Insurance calculator to know more about your employment allowance eligibility.

20. The Patent Box deduction

If your small business has patented products or inventions and makes a profit off those patents, then you can reduce your Corporation Tax to 10%.

The relevant income must come by specific categories, including licensing or selling patent rights, selling patented products, patent infringement income, damages or compensation from patent rights or a patented manufacturing procedure or tool.

21. Small business rate relief

Depending on the rateable value of the property your small business operates from, you can be eligible for small business rate relief.

To claim this relief, your property needs to have a rateable value of less than £15,000, and your business must only use that one property.

You won’t pay business rates if your property has a rateable value of £12,000 or less.

For properties between £12,001 and £15,000, the relief decreases gradually from 100% to 0%.

22. Business insurance

As a small business owner, you are eligible to deduct your business insurance costs on your tax return. Business insurance include office equipment, D&O insurance,

23. Cost of decorating the office

The cost of decorating your small business premises will be tax allowable.

This includes items like paintings and antiques that you use to decorate areas seen by customers and the general public.

You will be required to make a business case for the expenditure, and more oversized items will get relief only under the capital allowances system, but, nevertheless, the scope exists for some significant deductions to be claimed.

24. Staff Parties

The cost of staff parties and any other type of staff entertaining is generally deductible.

Normally, this will cover the annual dinner or Xmas party.

An annual cost of any staff functions is kept to £150 per head inclusive of VAT, so there will be no taxable benefits for the employees either.

Staff party allowance can be used to exempt one or more business functions each year, provided the total cost does not exceed £150 per head.

25. SEIS and EIS

Finally, if you are thinking about your small business’s future and financial growth, it’s worth knowing the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS).

Although none of the schemes will give your small business any tax relief, they incentivise potential investors with attractive tax breaks.

Final Thought

With this list of small business tax deductions, you’ll be well on your way to saving on your taxes.

However, deductions can be tricky; it’s always beneficial to consult small business accountants or tax advisors for any questions that might arise to ensure you are on the right side of all applicable regulations.