Top Tax Deductions for Small Businesses in 2025

Did you know that in the early 1900s, tax deductions for businesses were not the norm? No wonder running a small UK business was even more challenging than it is today. However, things started to move in their favour when deductions for their business expenses gradually became more structured. Today, the UK government strongly emphasizes the growth of small businesses. As a result, there are several key tax deductions for them in 2025. Read the blog and learn more about them to be on top of your finances effortlessly.

The Allowable Expenses

Know that there are several expenses that you can claim as a small business. Some of these include expenses on office supplies and equipment, employee wages, business insurance premiums, utility bills, marketing, and advertising. It is also possible to claim certain employee benefits, such as health insurance, pensions, and childcare vouchers as your business expenses.

Here one should not forget to mention that these allowable expenses also include the much-needed vehicle and travel expenses. Regardless of the mode of transport used for business trips, you can also claim expenses for repairs, servicing, and road tax. Moreover, if you use your personal vehicle for business trips, you will become eligible to claim 45p per mile for the first 10,000 miles and then 25p per mile.

Small Business Rate Relief

Does your business run from your property whose rateable value is less than £12,000? If yes, rejoice because your business is eligible for 100 % small business rate relief, leading to massive savings. However, you need to contact your local council. This relief will taper down gradually if the rateable value is between £12,001 and £15,000.

Marginal Rate Relief

If your SME is a limited company, you can apply for the marginal rate relief to reduce your corporation tax. The only condition is that your taxable profits from 1 April 2023 must be between £50,000 and £250,000. Thus, under this marginal rate relief, you will be required to pay a tax rate between 19% and 25%, which will gradually increase by an increase in your taxable profit.

Seed Enterprise Investment Scheme (SEIS)

While SEIS does not directly help tax deductions, it attracts investors. So, you can secure funding for your SME through this scheme, which will eventually help the investors to avail a range of tax reliefs such as 50% income tax relief, capital gains tax exemption, etc.  

Research & Development (R&D) Tax Credits

If your small business is developing innovative products, services or processes or improving existing ones, you can claim up to 27% of your R&D costs. This covers staff wages, utilities for R&D work, software, etc. Meanwhile, your small business can become eligible to claim expenses on some qualifying indirect activities such as maintenance of R&D equipment and research by students and researchers.

Living at Your Business Premises

Are you running a Bed and Breakfast, guesthouse, or small care home? In such a case, instead of manually calculating private vs. business use, you can claim business expenses using HMRC’s simplified expenses flat rate. Normally, when you run a business from your home, you have to separate your business costs from personal costs for certain things like electricity, gas, and council tax. As this is extremely tough, HMRC provides a fixed monthly deduction based on the number of people living there. So, let you live with your spouse and two kids in a guesthouse that you run as a small business, the flat rate for 3 or more people will apply which is £650 per month.

Annual Investment Allowance

Starting a small business means investing in some plants and machinery for operations, but they often prove very costly. Here comes to your rescue the annual investment allowance. This allowance enables you to deduct the costs of all these plants and machinery up to 1 million from your business profits before paying any tax and reducing your taxable income.

It is vital to understand these tax deductions for small business in 2025. Keeping accurate records, saving receipts, and consulting an accountant can ensure you claim all eligible expenses while staying in compliance with HMRC regulations. If you need tailored tax advice, our expert team at Coreadviz is here to help.

Our team of skilled accountants and tax consultants can advise strategies to maximize your tax savings. Be it VAT registration, bookkeeping, tax planning, or submission of self-assessment tax returns, you will be never alone in your entrepreneurial journey.