Maximise Your Savings With Business Tax Relief

Paying tax is an unavoidable part of running a business. You’ll pay corporation tax on your profits as a UK limited company and capital gains tax when you sell an asset. But are you making the most of the available business tax relief?

Tax reliefs and allowances are built into the UK tax system, acting as a way to reduce your tax burden as a business. This is great for encouraging enterprise, freeing up cash and giving you the capital to invest in and grow your future.

In this article, we’ll look at how those tax reliefs work, where to claim relief and how to use finance to maximise the impact.

What is business tax relief and why does it matter?

Business tax relief uses tax allowances to cut your overall tax bill as a company. Reliefs work by reducing your taxable income or liabilities, so the total profits used by HM Revenue & Customs (HMRC) to calculate your tax are reduced. 

The net result is that you pay less tax and have more cash available to grow your business.

Why is this important? Slimming down that tax liability is valuable for a number of different reasons. 

For example, business tax relief:

• Extends your capital: Reducing your tax costs frees up capital, putting the company in a more healthy and liquid financial situation.
• Makes it easier to reinvest: Having additional capital gives you money to invest in research and development, hiring staff and funding your growth plans.
• Boost your growth potential: Tax reliefs encourage you to reinvest, come up with entrepreneurial ideas and take your business to the next level.
• Aids the overall UK economy: Business tax relief is a key way to encourage growth of the UK business sector and bring international entrepreneurs into the UK. In turn, this helps to fuel growth, revenue generation and the economy. 

What are the main tax relief opportunities for small businesses?

Some of the most common tax reliefs include Business Property Relief (BPR) for reducing inheritance tax, Business Asset Disposal Relief (BADR) for lower capital gains tax when selling a business, Annual Investment Allowance (AIA) for claiming 100% tax relief on qualifying asset purchases, Small Business Rate Relief to reduce property costs, Employment Allowance for cutting National Insurance bills, VAT reliefs on business purchases, and R&D Tax Credits for reclaiming costs on innovation projects.

The more you understand the UK tax system, the easier it becomes to spot the available reliefs. It’s a good idea to talk to your accountant so they can point out the most relevant reliefs and work with you to put a claim together. 

Let’s take a look at some of the most common reliefs:

1. Inheritance tax relief (Business Property Relief):

Business Property Relief (BPR) reduces the Inheritance Tax (IHT) liability on qualifying business assets when you pass them on to family.  This is important if you want to minimise IHT and ensure a smoother transition to the next generation.

This is how BPR works:

• Reduced tax burden: BPR allows for a reduction of either 50% or 100% in IHT on qualifying business assets. At 100%, you can effectively hand the asset to your beneficiaries free of IHT. A £1m threshold will be introduced in April 2026, with assets over the threshold taxed at a new rate of 20%.
• Eligibility criteria: To qualify, the business or business assets must generally be owned for at least two years, and the business must be actively trading.  
• Qualifying assets: BPR can apply to shares in a trading company, business assets like machinery or property and certain intellectual property rights.

2. Capital gains tax relief (Business Asset Disposal Relief): 

When you dispose of a business interest, you’d usually need to pay capital gains tax (CGT) on any profits you make from the sale. To incentivise entrepreneurs to invest in new businesses, Business Asset Disposal Relief (BADR) is available, 

This is how BADR works:

• Reduced tax burden: BADR allows you to pay tax at 10% on all gains on qualifying assets. This significantly reduces your tax liability when disposing of qualifying business assets, helping you improve your return on investment.
• Eligibility criteria: To qualify, you must have owned the business or business assets for at least two years, and be actively trading.  
• Qualifying assets: BADR can apply to ownership of the business, shares in a trading company and business assets used at the time of the sale. 

3. Capital Allowances (Annual Investment Allowance)

Capital allowances let you deduct some, or all, of the value of an item from your profits before you pay tax. This is especially helpful when you’re investing in new equipment, plant or assets and want to reduce the impact of this expense. 

The Annual Investment Allowance helps you invest in the equipment that’s needed to increase your productivity and scale up your operations. This is how AIA works:

• 100% First-Year Tax Deduction: The AIA lets you deduct the full cost of qualifying capital expenditure from your taxable profits, in the year of purchase. The upper limit is currently £1m. This significantly reduces the tax burden of investing in new assets.
• Improved Cash Flow: The AIA reduces your immediate tax liabilities and improves cash flow. This frees up cash to reinvest in the business, repay debts or fund your future strategic growth initiatives.  
• Encourages Investment: The AIA incentivises businesses to invest in new equipment and technology, leading to better productivity, higher efficiency and a more competitive edge for the business.

4. Expense-related reliefs and allowances: 

Operational expenses can be one of the biggest outgoings for a business. HMRC has various reliefs and allowances that allow you to claim back some of these costs. 

Here are just a few of the available reliefs and allowances:

• Small Business Rate Relief:
  
  • Benefit: Provides relief from business rates for small businesses occupying property with a rateable value below a threshold.  
  • Eligibility: Varies depending on your property's rateable value and other factors, but rateable value must be below £15,000.
• Employment Allowance:
  
  • Benefit: Allows employers to reduce their National Insurance Contributions (NICs) by up to £5,000 each year.  
  • Eligibility: Applies to most employers if your employers’ Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.
• VAT Reliefs:
  
  • Benefit: Your VAT registered business can reclaim VAT on eligible business purchases, such as stock, equipment and services.  
  • Eligibility: Varies depending on the type of business and the goods/services being purchased.
• Mileage Allowance:
  
  • Benefit: Allows sole traders and employees to claim back some of the costs of their business-related travel. 
  • Eligibility: Businesses and sole traders that use cars, vans, motorcycles or bicycles for work purposes.

5. R&D Tax Relief:

The R&D Tax Credits scheme is a UK government incentive.  It’s designed to encourage businesses of all sizes to invest in research and development (R&D). It does this by reducing the qualifying costs from your trading profit for tax purposes, and offering payable tax credits to bring down the costs of R&D.

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• Benefits:
  
  • Tax Reduction or Cash Refund: Eligible businesses can receive a tax reduction or a cash refund based on their qualifying R&D expenditure.
  • Increased Innovation: R&D Tax Credits incentivise businesses to invest in innovation, leading to the development of new products, services and technologies.
• Eligibility:
  
  • Qualifying R&D Activities: The scheme covers a broad range of R&D activities, including creating new innovations within your sector, or seeking to resolve a scientific or technological challenge.
  • All Company Sizes: Both small and large companies can claim R&D Tax Credits, with different schemes available for each.

You can find out how to claim R&D Tax Credits here.

What are the challenges in unlocking tax relief?

There are plenty of business tax relief opportunities available, but many business owners are just not aware of the reliefs and allowances, or don’t believe they apply to their particular business. This can create a barrier to claiming these reliefs.

A lack of awareness isn’t the only factor. There’s also the issue of complexity. Navigating HMRC’s rules around reliefs can be daunting, which often leads to businesses missing out on viable claims and opportunities.

Cash flow is also a contributing factor. Businesses often lack the immediate cash flow needed to invest in assets or R&D to qualify for reliefs.

How can iwoca’s business loans help you access tax relief?

A lack of liquid capital can prevent you from making the necessary investments to grow your business or qualify for tax reliefs. With iwoca’s flexible financing options, you can quickly access the funds you need to take advantage of these opportunities.

iwoca’s Flexi-Loan is designed to help businesses like yours bridge cash flow gaps, ensuring you have the capital ready to invest in areas that may qualify for relief, such as equipment, innovation, or energy-efficient upgrades.

iwoca makes it easy to take out a Small Business Loan or Flexi Loan and to have that cash in the bank, ready to make new capital purchases. 

As a borrower, you get:

• Immediate access to capital: You can quickly bridge any funding gaps, making it easier to invest in qualifying activities or pay tax bills on time.
• Flexible repayments: You can repay early (without any penalties) to save on interest. A tax refund can be used to repay the loan and boost cash flow.
• Customised solutions: There are tailored loans and finance options, whether you’re investing in equipment, R&D or other deductible expenses​​.

Tips for maximising your tax relief opportunities

Claiming business tax relief where it’s available makes good sense. The combined impact of these reliefs and allowances can reduce your tax burden, while also increasing your capital and ability to reinvest in the business.

To get the most from these reliefs, we’d suggest that you:

• Plan strategically: Schedule your purchases of assets or investments to align with the most effective tax deadlines and relief windows.
• Keep meticulous records: Record and document all your expenses to make sure you have the evidence to claim deductions and credits accurately.
• Work with an adviser: Your accountant can add real value by uncovering tax-saving opportunities that are specific to your industry and business model.
• Use digital tools: Use your cloud accounting software to track expenses, simplify tax filings and keep detailed digital records.​​

iwoca: flexible funding for grabbing tax-saving opportunities

Seizing the available tax-saving opportunities is a must. And simple access to a much-needed cash injection is key to investing in your growth and claiming relief.

Taking out a loan with iwoca couldn’t be easier. Just fill out the online loan application, provide a few simple details and you’ll have an answer in a matter of minutes.

Apply for a loan today and start investing in your business journey.

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