Running a successful business in the UK requires hard work, determination, and smart tax planning. There are currently 5.5 million private sector businesses in the UK, and an overwhelming 99% of these are small to medium-sized enterprises (SMEs), as per the findings of the House of Commons Library. Unfortunately, many of these businesses are at risk of overpaying taxes due to a lack of awareness about the tax reliefs available to them. As a small business owner, there is nothing worse than paying more tax than required.
Chris Roberts, the Managing Director at Capital Allowance Review Service, says, “Small business owners work incredibly hard for their profits. The tax system offers legitimate ways to reduce your burden, but people often miss out because they don’t realise what’s available. Understanding these reliefs can make a significant difference to your cash flow and long-term growth.” Roberts’s firm specialises in uncovering overlooked tax reliefs for commercial property owners and investors.
6 Tax-Relief Strategies for SMEs
For small businesses looking to limit their tax burden, here are six fully compliant strategies to implement in 2025.
1. Capitalise on Capital Allowances
Capital allowances are a largely underused tax relief strategy. These allowances permit businesses to deduct the cost of qualifying assets from their profits before tax is calculated. These qualifying assets can include a range of items, from machinery and equipment to fixtures in commercial properties, heating systems, electrical installations, and certain building alterations. “Business owners may not realise they can even claim retrospectively on assets they’ve owned for years,” explains Roberts. The Annual Investment Allowance (AIA) for 2025 permits businesses to claim 100% tax relief on qualifying plant and machinery up to £1 million, according to Merranti Accounting.
2. Claim Home Working Expenses
With the rise of remote and hybrid working models, HMRC now allows business owners to claim a portion of household costs, such as electricity, heating, internet, and phone bills. These can be claimed in proportion to the space and time used for work. Alternatively, HMRC offers a flat rate of £6 per week (£312 per year) without the need to track exact costs or provide receipts.
3. Increase Pension Contributions
Employer pension contributions are a highly tax-efficient method to build retirement savings and reduce taxable profits. These contributions are deductible as business expenses and exempt from National Insurance for both employers and employees. “Directors of limited companies can save considerably by making employer pension contributions rather than taking dividends,” adds Roberts.
4. Leverage the Employment Allowance
The Employment Allowance can reduce a business’s National Insurance liability by up to £5,000 per year. This relief is available to most companies whose employer National Insurance bill was less than £100,000 in the previous tax year, as stated by the British Business Bank. Eligible businesses can claim this allowance automatically via payroll software. This can bring immediate savings, particularly for companies hiring staff for the first time.
5. Explore Research and Development (R&D) Tax Credits
R&D tax credits are not just for tech startups or laboratories. Companies that develop new products, services, or processes, or significantly improve existing ones, may qualify. “We’ve seen manufacturers, food producers, and construction firms successfully claim,” says Roberts. SMEs can deduct an extra 86% of qualifying costs from profits or claim a tax credit if the company is loss-making.
6. Maintain Detailed Records of Business Expenses
Many small businesses miss out on legitimate deductions, including travel, professional fees, marketing, training, insurance, and software subscriptions, due to a lack of record-keeping. “Maintain receipts and accounting records throughout the year,” Roberts advises. “Use apps or accounting software to track expenses in real time – this ensures you don’t miss valid claims and makes year-end filing far less stressful.”
In conclusion, tax planning is an integral part of running a successful business. SMEs can reduce their tax burden by exploring these available tax-relief strategies. While tax planning might seem daunting, understanding these reliefs can lead to significant savings, improved cash flow, and long-term growth for businesses. Source: Here
