It is a less-known fact, but businesses pay a lot in unnecessary taxes. Many legitimate tax deductions go unclaimed because people are not aware of the different tax deductions in the first place.
For a tax deduction, you must retain appropriate accounting records like bills, invoices, and receipts for at least six years. There are penalties of as much as £3,000 for non-retention of relevant documents.
Generally, professional accountants and bookkeepers will take care of these, but this blog post will come in handy if you don’t have any. Here, we will outline the extensive list of small business tax deductions in the UK (2024). Keep this handy when you are calculating the business taxes.
What is a tax deduction?
Tax deduction means deducting certain business expenses from taxable profit. The allowable expenses are the ones that you make to sustain your business. Any amount that you spend on these is not taxed.
For example, if your business profit is £50,000 and £10,000 allowable expenses, your taxable profit will be £40,000.
Read about : Common tax mistakes that business owners make
19 Tax deductions for small businesses
This list of small business tax deductions can help small businesses save a lot of money. Let’s dig into it now.
1. Your home
It is a common phenomenon for small business owners to work from home. This flexibility is something that comes in handy many times. Do you know when you work from home, you can get a tax deduction for your house bills?
Yes, that is right. HMRC has some rules for owners who work from home. You have to prove that you spend considerable time working from your home. There are different tax rules for sole traders and limited company owners.
For limited companies, you can rent out a specific place of the house in a rental agreement and claim up to £312 per financial year. Using broadband and phone connections in your business name will help in tax deductions on those bills.
2. Vehicle hire
You can claim a tax deduction on the vehicles that you hire for business purposes. However, the amount that you are charged over weekends won’t come under the same. You have to divide the costs between office use and weekend use, then claim the tax for only office use.
3. Business gifts
Business gifts that carry a conspicuous advertisement of your company come under tax deduction. But there is a price cap on it. The maximum amount you can spend on one recipient over the tax year is £50 only.
Also, F&B, tobacco, and vouchers for the same are not eligible for a tax deduction. Some of the allowable gifts are mouse pads, pens, and diaries. Remember that the advertisement should be present on the gift and not just on the wrapper.
4. Marketing, advertising and PR costs
Businesses marketing that incur costs for these activities are eligible for a tax deduction as they are important for business growth.
5. Basic business costs
Stationary for your office, telephone bill, internet bill, etc., are some of the small yet important expenses you incur. All of these come under tax deduction, and you can claim it by keeping receipts safely.
6. Annual parties and other social events
Employers can claim an exemption for the social events and annual parties at their establishment. There are different cases in this scenario that needs to be understood. There is a £150 cap on the amount that employees can spend on each attendee.
Now, let us understand different scenarios.
- If a business has many branches, then the tax deduction is applied separately for each UK location.
- If the business has more than one annual event in a year, the per-head cost of each of these events is calculated. The event with the lowest cost per head is counted and tax-deductible. The remaining ones are taxed.
7. Unsettled invoices
Any invoice that is not cleared for more than six months can be deducted from tax. However, it is essential to declare the invoice under income once it is paid; failure to do so can make you eligible for some heavy penalty by HMRC.
8. Accountant fee
It is a well-known fact that running a business without an accounting function is impossible. It is an expense that every business must incur. This expense is deducted from taxable profits.
9. Mileage allowance payments (MAP)
Businesses can reimburse employees to use their vehicles for business transportation.
HMRC has a cap on the amount you pay in MAPs, which is called the approved amount.
| First 10,000 miles | Above 10,000 miles | |
| Car | 45p | 25p |
| Motorcycles | 24p | 24p |
| Bike | 20p | 20p |
Now, let us calculate the amount that you can spend on your employee as MAP.
Your employee travelled 12,000 miles per year. Now the tax deduction will be 10,000 x 45p + 2,000 x 25p = £5,000.
10. Computer and its peripherals
The hardware that you are using at your organisation, along with the software licenses, everything is tax-deductible. Examples include laptops, monitors, operating systems, headphones etc.
11. Director and staff salary
Both directors and employees are the backbone of a business. Hence their gross salaries are eligible for a tax deduction. Employees include both permanent and contract.
Read : Guide to the UK corporation tax system
12. Travel expenses
If you are travelling for business purposes, all the expenses you incur during the trip are deducted from tax payments. There is no price cap here, and everything that you spend there won’t be taxed.
13. Overdrafts and business loans
Interest on the business loans and overdraft is tax-deductible. If you have taken a personal loan yet used it for your business itself, it is not allowable for tax purposes.
So, it is essential to take a business loan in your business name rather than the personal, as you can save up against the interest you will be paying.
14. Child care costs
Child care costs are tax-deductible if you have a creche in office premises for your staff children. However, if your kids are the only ones using it, it can be taxed. This is a generous tax deduction.
15. Membership
The membership costs to different kinds of boards in your business are entirely tax-deductible. Examples include membership fees of professional bodies of engineers, doctors, accountants, and actuaries.
16. Rental costs
The rental costs of your business are entirely tax-deductible provided; the premises are used for business purposes only without any personal use.
17. Training courses
In a fast-changing environment, it is essential to stay updated about market trends and industry changes. Costs of such courses, seminars, workshops and conferences are tax-deductible.
These must be business and technical courses related to your work and business, not for fun or as a hobby. The course should be something that will help in upskilling your employees.
18. Parking fees
So many wouldn’t know about this, but the legitimate parking fee you pay on a business trip comes under tax deduction. However, parking tickets and speeding fines are not tax-deductible.
19. Insurance payments
The cost of insurance is a tax-deductible expense. Insurance coverage includes premises, public liability, employer’s liability, professional indemnity insurance and content insurance.
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Wrapping up
I know most business owners aren’t even aware that they can save taxes in these many ways. HMRC offers so many tax saving options, and businesses need to be mindful of them to make the most out of these deductions while filing taxes.
