What is small business tax relief?
Tax relief, or a tax break, is a way for you to reduce your tax liability by accounting for money you spend on or invest in your business.
Taking advantage of tax breaks doesn’t mean avoiding tax, finding a loophole in the tax system, or paying less than you owe. Claiming it doesn’t mean avoiding tax or paying less than you owe. It simply means you’re taking advantage of government-backed schemes designed to put more money back into businesses and stimulate the economy.
Some types of small business tax relief are industry-specific. Others depend on your business structure (eg whether you’re a sole trader or limited company). Each tax break also comes with its own set of criteria that determine whether you’re eligible.
In this guide, we break down eight essential tax reliefs for the 2026/27 tax year. We’ll explain how they work, who’s eligible, and what you need to do to claim them.
💡 Top tip
If you don’t have an accountant for your business, it may be worth consulting with one when it comes to calculating your business tax.
To learn more about how accountants can help to ease the complexities of filing your tax return, read our complete guide to small business accounting, or find out how to choose an accountant for your small business 📌
1. Small Business Rate Relief (SBRR)
If your business operates from a physical location such as an office, shop, or studio, you likely pay business rates. These are effectively a property tax for commercial buildings. For many small businesses, Small Business Rate Relief is the single most effective way to lower fixed overheads.
Who qualifies for small business rate relief?
You may be eligible if you:
Use one property with a rateable value of less than £15,000
You only use one property for business purposes, although you might still be able to get some relief if you use more in certain circumstances
Anyone with a property that has a rateable value of £12,000 or less will not pay business rates. If your property has a rateable value between £12,001 and £15,000, relief is gradually reduced from 100% to 0%.
For example: A rateable value of £13,500 will mean 50% off your bill, whilst a rateable value of £14,000 entitles you to 33% off (source: gov.uk).
If you don’t qualify for small business rate relief but your property has a rateable value below £51,000, your bill will be calculated using the small business multiplier. This is currently 43.2p, lower than the 48p standard multiplier from 1 April 2026 to 31 March 2027.
Note: You won’t be entitled to SBRR if your business receives Mandatory Rural Rate Relief or Mandatory Charitable Relief. These are separate schemes available for businesses in rural areas with a population under 3,000, and businesses who use their property for charitable purposes respectively.
How to get small business rate relief
Contact your local council to confirm your eligibility and check whether you may be able to claim any additional relief on top of SBRR. Relief is not always automatic, so make sure you check your latest bill.
2. Allowable business expenses
Allowable expenses are the most common way to lower your tax bill, yet many business owners still leave money on the table by not tracking every cost. The golden rule from HMRC is that an expense must be incurred "wholly and exclusively" for the purpose of your business.
Common allowable expenses
Category | Examples of what you can claim |
|---|
| Rent, utility bills, business rates, and stationery. If you work from home, you may be able to claim a proportion of your domestic bills based on the number of rooms you use for your business or the time you spend working from home. |
| Fuel, parking, train tickets, and hotel stays. You cannot claim for commuting to your usual place of work, or any fines you might receive whilst travelling for work. |
| Salaries, bonuses, pension contributions, and staff training relevant to the business. |
| Website hosting, free samples, newspaper ads, and professional subscriptions. |
| |
For more details on allowable expenses, head to gov.uk
Allowable expenses for dual-purpose assets
If you use something for both business and personal use – such as a mobile phone or a car – you must only claim on the business portion. For example, if 60% of your mobile data is used for client calls, you can only deduct 60% of the bill.
How to claim allowable expenses
Make sure you keep a record of all of your business expenses, then tell HMRC your allowable expenses for the year when filing your return.
3. Annual Investment Allowance (AIA)
Where allowable expenses allow you to get a tax break on the costs incurred by everyday running costs, Annual Investment Allowance (AIA) gives you tax relief on large purchases of things you buy to keep and use in your business.
What is AIA?
AIA allows you to deduct 100% of the cost of qualifying plant and machinery from your business profits before tax is calculated. Instead of spreading the tax relief over several years through standard depreciation, you get the full benefit in the year you buy the item.
The AIA limit is currently set at £1 million. This covers the vast majority of small business capital investments.
What qualifies for AIA?
Office equipment (laptops, furniture, servers)
Machinery and tools used for your trade
Vans and lorries
Parts of a building known as "integral features" (eg air conditioning)
Note: Most cars do not qualify for AIA. However, brand-new electric cars and charging points often qualify for a 100% First Year Allowance (FYA), which provides a similar immediate tax benefit.
4. Employment Allowance
If you employ staff, National Insurance (NI) is a significant expense. The Employment Allowance is designed to help eligible employers by reducing their annual Class 1 National Insurance bill by up to £10,500.
This means you’ll pay less employers’ Class 1 NI every time you run your payroll. This applies until the £10,500 limit has been reached, or the tax year ends (whichever comes first).
Who’s eligible for Employment Allowance?
You can claim Employment Allowance for the current tax year if:
You’re a business, public body or charity
Less than half of your work is done in the public sector
You employ a care or support worker
Businesses and charities can claim Employment Allowance for the last 4 tax years if your employers’ Class 1 NI liabilities were less than £100,000 during the previous tax year.
Note: You can’t claim if you’re a limited company where the director is the only employee paid above the Secondary Threshold. You can also only claim for one payroll (PAYE) scheme, even if your business has several.
How to claim Employment Allowance
You can claim at any time during the tax year through your payroll software. If you've already started the year, you can still claim and have your previous NI payments offset.
Learn more about claiming Employment Allowance at gov.uk
5. Research and Development (R&D) tax relief
R&D is a form of corporation tax relief designed to reduce your tax bill, or even provide you with a payable tax credit.
For profitable companies the credit reduces your Corporation Tax bill
For loss-making companies the credit can be paid out as a cash sum, providing a vital injection of liquidity
As of April 2024, the UK has operated on a Merged R&D Scheme. For the 2026/27 tax year, this offers a taxable expenditure credit (RDEC) of 20% of your qualifying R&D spend.
What counts as R&D?
You must be trying to achieve an advance in science or technology. This could be developing a new software algorithm, improving a manufacturing process to be more efficient, or creating a more durable material for construction. It doesn't have to be a "world first", it just needs to be an advance that isn't readily deducible by a competent professional in your field.
How to claim R&D tax relief
To claim RDEC, enter the total qualifying expenditure on your company tax return form (CT600). If you’re new to R&D claims, consider using a specialist tax adviser to ensure you capture all eligible costs.
6. Patent Box
If your company makes a profit from inventions that you have patented, you can apply for the Patent Box. This scheme allows you to pay a lower rate of corporation tax on those specific profits.
The Patent Box rate is currently 10%, significantly lower than the standard Corporation Tax rate of up to 25%.
Who’s eligible for the Patent Box?
Your company is eligible if it:
Is liable to corporation tax
Profits off patented inventions (they don’t have to be your own inventions)
Owns or has exclusively licenced-in the patents (you may also be eligible for the scheme if your company holds certain medicinal or botanic innovation rights)
Has undertaken qualifying development on the patents
How to claim tax relief through the Patent Box
To claim, you must formally elect your company into the regime via your Company Tax Return (CT600) within two years of the end of the relevant accounting period.
7. Charity donations and sponsorships
Donations to charities from individuals in the UK are tax-free. There are different types of donations, which are all treated differently:
Donation type | Rules |
|---|
| If a charity or Community Amateur Sports Club (CASC) is registered for Gift Aid, they’re able to claim the basic rate of tax that donors have paid from HMRC.
This means a charity or sports club will get an extra 25p for every £1 you donate, and it won’t cost you extra. |
| Donations can be made straight from wages or pension before tax is calculated.
The amount of tax relief will vary based on the rate of tax you pay. You can check your rates at gov.uk |
| No tax is owed on any land, property or shares donated to charity, or sold below their market value.
Deduct the value of the donation made from your total taxable income and it will be deducted from your Income Tax calculation. |
| You can leave gifts to charity in your will and the total donation amount will be deducted from the value of your estate, before the Inheritance Tax is calculated. |
How to claim tax relief on charity donations
Keep a record of every donation you make and they’ll be deducted from your total taxable income.
8. Creative industries tax reliefs
These tax reliefs were launched by the Government in 2013 as a way to encourage long-term investments in the UK’s creative industries.
Eligible industries include:
Film
High-end TV
Animation
Video games
Children’s TV
Theatre
Orchestra
Museums and Galleries Exhibition
Wrapping up
Tax legislation changes, so it’s worth reviewing your eligibility each year. The thresholds mentioned here are correct for the 2026/27 tax year, but future Budgets may bring adjustments.
Next steps:
Audit your spending: Look back at your capital purchases from the last year to see if you've missed any AIA claims.
Check your Business Rates: Ensure you are receiving the Small Business Rate Relief if your property qualifies.
Speak to a professional: Tax is complex. A qualified accountant can help ensure you are claiming the right reliefs in the right way to stay compliant with HMRC.
Small business tax relief FAQs
What is the most common form of small business tax relief?
Allowable business expenses are the most widely used form of small business tax relief. Most business owners can deduct costs such as office rent, travel, equipment, and professional fees from their taxable profits. It’s also one of the easiest reliefs to miss out on if you’re not keeping accurate records.
Can a sole trader claim small business tax relief?
Yes. Sole traders can claim several types of small business tax relief, including allowable business expenses, AIA on qualifying equipment, and Employment Allowance if they employ staff. Some reliefs, such as R&D tax relief and the Patent Box, are only available to limited companies liable to corporation tax.
How do I know if my business qualifies for Small Business Rate Relief?
Your property’s rateable value determines your eligibility. If it’s £12,000 or below, you pay no business rates. If it’s between £12,001 and £15,000, you’ll receive partial relief on a sliding scale. Contact your local council to confirm your rateable value and check whether you need to apply.
Does my business need to be profitable to claim R&D tax relief?
No. Under the Merged R&D Scheme, loss-making companies can convert their RDEC credit into a payable cash sum, making it a valuable source of cash flow for early-stage businesses investing in innovation.
Can I claim multiple types of small business tax relief at the same time?
Yes, in most cases. For example, a limited company could claim allowable expenses, AIA on equipment purchases, Employment Allowance for its NI bill, and R&D tax relief for qualifying innovation work, all in the same tax year. Each relief has its own eligibility criteria, so it’s worth reviewing each one or speaking to a qualified accountant.
What records do I need to keep to claim small business tax relief?
HMRC requires you to keep clear records of all business income and expenses, including receipts, invoices, and bank statements. For reliefs like AIA, you’ll need proof of purchase and the date of the transaction. Making Tax Digital (MTD) tools, like those built into Tide, make it easier to maintain accurate records throughout the year.
Photo by Anthony Shkraba, published on Pexels
