Running a small business in the UK comes with plenty of challenges — but overpaying tax doesn’t need to be one of them. With the right planning and expert advice, you can take advantage of a range of UK tax-saving strategies to keep more of your hard-earned profits. Here are our top small business tax tips to help you reduce your tax bill and plan more effectively for the future.
1. Make the Most of Allowable Expenses
One of the simplest tax planning UK strategies is to ensure you’re claiming all the business expenses you’re entitled to. From office supplies and travel costs to phone bills and even a portion of your home expenses if you work remotely — these can all be deducted from your taxable profits. Keep thorough records and don’t miss out on legitimate claims.
2. Use the Annual Investment Allowance (AIA)
The AIA allows small businesses to deduct the full value of qualifying capital purchases (such as equipment and machinery) from their profits, up to a set annual limit. Making use of this allowance is a highly effective UK tax-saving strategy, particularly if you’re planning significant purchases.
3. Pay Yourself Tax-Efficiently
Structuring how you pay yourself can make a big difference to your tax bill. A common approach is to take a combination of salary and dividends. Salaries are deductible for corporation tax purposes, while dividends often benefit from lower tax rates. This is one of the most essential small business tax tips for owner-directors.
4. Consider Incorporation
If you’re operating as a sole trader or partnership, it may be worth reviewing whether incorporation could save you tax. Operating through a limited company can open up more options for tax planning in the UK, including profit extraction strategies and more flexibility with expenses.
5. Make Use of Pension Contributions
Pension contributions made through your company can be a powerful way to save tax. Not only are they deductible for corporation tax, but they also help you build a secure retirement. This is a long-term UK tax-saving strategy that also boosts your financial future.
6. Claim R&D Tax Credits
If your business carries out innovative work — even on a small scale — you might be eligible for Research & Development (R&D) tax relief. Many small businesses overlook this, but it can result in a substantial reduction in corporation tax or even a cash rebate.
7. Keep an Eye on VAT Thresholds
VAT registration is required once your turnover exceeds £90,000 (as of 2024/25). However, voluntary registration below this threshold might benefit you depending on your clients and industry. Understanding your VAT position is a key part of proactive tax planning in the UK.
8. Use the Trivial Benefits Exemption
You can give your employees (including yourself, if you’re a director) small gifts worth up to £50 each without triggering tax or National Insurance — as long as they meet certain conditions. It’s a small win, but every bit helps.
Final Thoughts
Effective tax planning UK-wide is about being proactive, not reactive. By using these small business tax tips and regularly reviewing your financial position, you can avoid unnecessary tax bills and improve your cash flow.
If you’d like help reviewing your current setup or exploring tailored UK tax-saving strategies, our team at Mitchells is here to help. We specialise in supporting small businesses — and we often find that clients are missing out on opportunities they didn’t even know existed.
Ready to start saving? Get in touch for a free, no-obligation tax review today.
