Most small business owners are overpaying their taxes – not because they have to, but because they don’t know what HMRC actually allows them to claim. You don’t know what you don’t know! In this blog, we want to cover the 5 main tax deductions (but do book a call if you’d like to learn more about creating a financial strategy).
What is a tax deduction?
This is quite straightforward to explain – tax deductions are expenses, approved by HMRC, that can be subtracted from an individual’s or business’s gross income. These deductions reduce the taxable income – lowering the total tax liability. It’s really important to make sure that these deductions are ones approved by HMRC. If you’re ever unsure, speak to your accountant or bookkeeper.
Types of tax deductions
- Home office expenses – yes, this is a thing! If you’re working from home, you are eligible to make certain expense claims. Business owners often fail to claim this back because they assume they need a dedicated room or are concerned about capital gains tax. HMRC have a simple formula – number of used used/total rooms x hours used for business x actual costs (take a look at the government guide here)
- Mileage and vehicle expenses – this is where some business owners become confused or fail to claim back correctly. This is any use of your personal vehicle for the business. In order to submit your expenses, you need to regularly and consistently track and record your business mileage. For the first 10,000 business miles, you can claim back 45p per mile. After that threshold has been met, you can only claim 25p a mile. This covers your fuel, insurance, MOT, repairs, vehicle tax etc. for the proportion of business travel. Remember, this does not include commuting costs. We recommend a mileage tracker, Tripcatcher, to our clients, making it easier and faster to track these costs. Read our blog on mileage expenses here.
- Small equipment/tools – perhaps you’ve been under the assumption that only big tools qualify. However, Section 75 assets include items under £500 in value.
- Items under £500 (de minimis rule): Can be claimed as immediate expense
- Items over £500: Claim through Annual Investment Allowance for 100% deduction in year of purchase
- Includes: computers, laptops, phones, tools, machinery, furniture, equipment
- Does not include cars, items for personal use, or land and buildings
- Professional subscriptions and training – this is pretty straightforward too. It’s easy to assume that only employees can claim back memberships, fees, and training courses.However, your accountant or bookkeeper can provide some guidance on what can be claimed as an expense. Remember, this won’t include learning a new trade or acquiring new skills.
- Business use of personal phone and broadband – this is very often overlooked, but again, the rules are straightforward. This is why you’re not claiming:
- Using personal phone/internet without separating business use
- Thinking you need a dedicated business line to claim
- Not tracking or calculating business usage proportion
You should calculate a reasonable proportion of business use, claim a percentage of your monthly bill, and consider presenting itemised bills that separate business usage.
In summary…
Once you know what to look for, claiming these deductions will become part of your regular business routine. With proper record-keeping and documentation, you can confidently reduce your tax bill while staying fully compliant with HMRC regulations. Here are 3 actions that you can take to make sure your business remains compliant:
- Track expenses consistently throughout the year
- Keep proper documentation as they go
- Seek professional guidance before problems arise
For additional support, drop us a message and we can answer any questions you might have.