7 Safe And Effective Tax Deductions That Every SME Should Be Claiming

HMRC collected over £533 billion in taxes during the 2015-16 tax year but we think it’s possible that many SMEs, business owners, and employees are currently paying more tax than they need to. They simply aren’t aware of a number of different tax incentives offered by HMRC that could reduce their tax bill. It’s no surprise that HMRC are not very good at letting people know about these incentives, so we are happy to introduce 7 safe and effective tax deductions that you should consider.

Tax deduction

photo credit: InvestmentZen

1. Tax free Christmas office party, panto or concert

When a company throws a party for all of its employees and the cost is less than £150 per head then it is a tax and NI-free benefit. This includes any gifts provided at the party such as hampers, chocolates as well as overnight hotel accommodation.

As an alternative you could consider treating your staff to something different such as a trip to the theatre or a concert. You just need to make sure that all employees are invited. If the cost goes over £150 per head get your employees to pay and let them claim back £150 as this ensures they don’t incur a tax bill in the new year.

2. Work from home allowance

SMEs can pay a tax free fixed amount of £18 month or £4 per week to their employees who regularly work at home. You can also pay this allowance if your employee works at home voluntarily under a ‘homeworking agreement’. There’s more information at the HMRC website.

3. SMEs can claim back 33% on their research & development costs

According to recent statistics less than 1% of companies claim Corporation Tax relief for their research & development (R&D) costs. Many businesses don’t claim for R&D costs because they think the scheme doesn’t apply to them, or because they are reluctant to approach HMRC who administer the scheme. It is worth speaking to a R&D tax credits specialist to see if you qualify as you could be missing out on recovering up to 33% of your development expenditure, and you should remember that you can go back two accounting periods.

You can benefit from R&D tax credits whether your business is making a profit or a loss. Loss-making businesses can claim a R&D tax credit payable (cash) amount from HMRC, while profit making business can significantly reduce their corporation tax bill.

4. Mobile phones for your employees

You can provide your employee with one mobile phone or SIM card tax and NI-free providing that the phone contract is between the employer and the supplier. You don’t need to report this benefit to HM Revenue & Customs.

5. Vehicle mileage for using a private car

You can claim for fuel, along with wear and tear, for mileage accumulated by your private car solely for the purpose of business, at a fixed rate of £0.45 per mile for the first 10,000 miles and £0.25 for each mile thereafter.

Motorcycle expenses for business purposes can be deducted at a fixed rate of £0.24 per mile for all mileage accumulated.

6. Tools, Uniforms and Expenses for Protective Gear

It is possible to obtain a tax deduction on the cost of providing tools, uniforms and protective gear for your employees. Depending on your overall expenses in this category, you can either claim the total amount you spent over the year, or choose the flat rate deduction option offered by the HMRC. Laundry costs incurred by employees for cleaning uniforms and specialised cleaning of certain protective items can also be claimed.

7. Accessorising your company car

HMRC doesn’t impose tax on extras for a company car with a list price totalling £100 or less, but that is not going to get you much these days. However, there’s an exemption that’s often overlooked. There’s no tax on extras if they’re to be used for the business.

The example HMRC gives is a tow-bar that’s used to pull a trailer for carrying equipment. If your job means that you drive to many different locations, it’s fair to say that a sat nav could be accounted for in the same way, and therefore be excluded from the benefit-in-kind (BIK) tax charge.


2 Comments 7 Safe And Effective Tax Deductions That Every SME Should Be Claiming

  1. Nathan Ambrose

    Hi Ivan.

    It’s good that you detailed these various tax advantages that can benefit small businesses. I find that my clients often have no idea about what they are and are not entitled to claim.

    Something else that would be of interest is marketing expenses. Some of them are also tax-deductible, but there are also a few exceptions.

    Thanks for sharing. Tweeting to my followers soon.


    1. Ivan Widjaya


      Thanks – that’s a good point to add. One thing for sure, small biz owners need to refrain themselves from trying to DIY their tax deductions. There are too many rules and regulations – and loopholes – for an average owner to handle.

      Thanks for the share! Much appreciated 🙂


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