Kirk Rice Blog

Tax deductions for small business ownersWritten on June 30, 2026 by Kirk Rice LLP

Key points

• Understanding the tax deductions available to your business may help improve cash flow, reduce taxable profits, and support future investment.
• Capital allowances, pension contributions and everyday business expenses remain some of the most valuable areas to review.
• Eligibility depends on your business structure, the type of expenditure and the relevant tax rules.
• Accurate bookkeeping and proactive tax planning may help ensure legitimate reliefs are not overlooked.

Our blog explains some of the main small business tax write offs, including who may be eligible, important conditions to be aware of and practical considerations when making a claim.

What are capital allowances?

Many businesses purchase equipment, machinery and other assets that support their operations. Rather than claiming the cost through the profit and loss account, expenses are capitalised on the balance sheet for accounting purposes.  Tax relief is then generally available through capital allowances – tax deductions that allow the costs of qualifying capital expenditure to be deducted from taxable profits over time.

Since 2019 the Annual Investment Allowance (AIA) has allowed qualifying businesses to claim immediate tax relief on up to £1 million of eligible capital expenditure each year.  The £1 million limit remains in place for 2026/27.

In addition, companies subject to Corporation Tax can currently claim full expensing, which allows them to claim 100% first year tax relief on all new qualifying plant and machinery.  Unlike AIA, full expensing is not subject to an annual spending limit.

Capital allowances may apply to:

• Office equipment.
• Machinery.
• Tools.
• Certain fixtures within business premises.
• Some commercial vehicles.

Eligibility may depend on both the type of asset you’ve purchased and the structure of your business. Some assets qualify for different rates of relief, while others may not qualify at all.

Can you claim tax relief on business vehicles?

Businesses frequently incur costs relating to company vehicles, although the tax treatment varies depending on the type of vehicle and how it is used.

For example:

• Vans and cars are taxed differently with different capital allowance rules and benefit in kind treatment applying.
• Capital allowances for cars depend on factors such as CO₂ emissions.
• Running costs may be deductible where they are incurred wholly and exclusively for business purposes.

If company vehicles are made available for private use by employees or directors, you should also consider the potential benefit-in-kind implications.

Pension contributions for directors

Making pension contributions through a limited company may provide a tax-efficient way for directors to save for retirement in appropriate circumstances.

Employer pension contributions are generally treated differently from personal contributions and may be deductible for Corporation Tax purposes where they satisfy the relevant conditions.

Potential advantages may include:

• Building retirement savings.
• Reducing company taxable profits.
• Supporting longer-term financial planning.

Contribution limits and pension tax rules continue to apply. The annual allowance for the 2026/27 tax year is currently £60,000 although future governments may change this.

Mileage claims and working from home

You may be able to claim tax relief for certain travel and home working costs where qualifying conditions are met.

If you use your personal vehicle for business journeys, approved mileage rates may be available instead of claiming actual running costs, depending on your circumstances.

If you work from home, tax relief may also be available for qualifying business use of your home. The method used to calculate allowable costs will depend on factors such as your business structure and the nature of the expenditure.

Keeping accurate mileage records and supporting evidence may help you support your claim if required.

Employee benefits and payroll reliefs

Employee costs often represent one of the largest expenses for growing businesses.

In addition to salaries and wages, you may be able to obtain tax relief on a range of employment-related costs, including:

• Employer pension contributions.
• National Insurance contributions where applicable.
• Certain staff benefits.
• Employee training.
• Business travel expenses.

Some benefits may also create reporting obligations or give rise to tax charges for employees. Understanding how different benefits are taxed may help you design remuneration packages that are both attractive and tax efficient.

Which everyday business expenses are tax deductible?

Many routine operating costs are deductible, provided they are incurred wholly and exclusively for business purposes.

Examples may include:

• Office costs.
• Business insurance.
• Accountancy fees.
• Legal fees relating to the business.
• Professional subscriptions.
• Marketing and advertising.
• Software subscriptions.
• Staff training that maintains or improves existing business skills.

Not every expense qualifies for relief, particularly where there is a personal element or where expenditure is capital rather than revenue in nature.

Keeping detailed records throughout the year may help you identify allowable business expenses and support your claims if required.

Bad debts and write-offs

Unfortunately, not every customer pays their invoices. Where debts are irrecoverable, you may be able to claim tax relief through bad debt provisions, subject to the applicable tax rules.

Before writing off outstanding amounts, you should ensure you have:

• Taken reasonable steps to recover the debt.
• Maintained evidence supporting the write-off.
• Applied the correct accounting treatment.

Whether tax relief is available will depend on your circumstances and the relevant tax rules.

Can you claim expenses before your business starts trading?

Many businesses incur costs before they officially begin trading.

In certain circumstances, qualifying expenditure incurred before trading starts may be treated as though it had been incurred on the first day of trading.

This may include costs such as:

• Professional advice.
• Market research.
• Equipment purchases.
• Certain setup costs.

Specific rules determine which expenditure qualifies, and not all pre-trading costs are eligible for relief.

Planning ahead and retaining invoices from the outset may help you identify qualifying expenditure and avoid overlooking legitimate claims.

Who can claim R&D tax relief?

Companies carrying out qualifying research and development activities may be entitled to claim R&D tax relief, provided they are chargeable to Corporation Tax.

The rules have changed significantly in recent years, and the current regime places greater emphasis on accurate record keeping and demonstrating that projects meet the legislative requirements.

Broadly speaking, qualifying projects seek to achieve an advance in science or technology by resolving scientific or technological uncertainty.

Eligible expenditure may include certain:

• Staff costs.
• Software.
• Consumable materials.
• Externally provided workers.

If you’re considering an R&D claim, maintaining appropriate evidence throughout the project may help support your claim and demonstrate that the qualifying conditions have been met.

Making the most of available tax deductions

No single deduction is likely to transform your business’s tax position on its own. However, understanding the range of tax deductions, reliefs and allowable business expenses available may help improve cash flow, support future investment and strengthen long-term financial planning.

To ensure you can maximise the reliefs available, you should:

• Keep accurate bookkeeping records throughout the year.
• Review your business expenses regularly.
• Plan significant purchases in advance.
• Consider the tax implications alongside wider commercial decisions.

Tax rules and eligibility criteria vary depending on your circumstances. If you’re unsure which deductions or reliefs your business could claim, Kirk Rice can help you understand the options available and how to remain compliant.

Find out which tax deductions your business may be able to claim, or contact our team for tailored tax planning advice: info@kirkrice.co.uk

Learn more on our dedicated business accountancy & taxation services page.

This article is intended for general information only and does not constitute tax, financial or legal advice. Tax treatment depends on individual circumstances and may change in the future.