What Tax Deductions Can Small Businesses Claim?

Team Nomi

Feb 20, 2025
8 minutes read

Tax deductions are an important part of managing your finances as a small business tax owner. When you run your own business, you have to pay tax on your profits, but there are ways to lower that tax bill using deductions. 

Understanding tax write-offs can benefit your UK business by reducing tax liabilities, increasing profits, and freeing up funds for growth. Common deductible expenses include rent, utilities, supplies, travel, meals, and home office costs.

This blog will explain the basics of self-employed deductions and provide a list of what small business tax owners can deduct. By taking advantage of available deductions, you can keep more of your hard-earned money and improve your business’s financial health.

Understanding Tax Deductions

Tax deductions are specific expenses that are allowed by tax and customs Authorities you can reduce from your total income, which reduces the amount of income subject to tax. This means that by claiming deductions, you can lower your tax bill and keep more money for your business.

Therefore, taking advantage of these deductions, it’s important to keep accurate records of all your business-related expenses throughout the year. By understanding and utilising tax deductions effectively, you can improve your financial situation and invest more in your business’s growth.

Tax Deductions for Small Businesses

Small businesses can reduce their taxable income by claiming allowable expenses, which include:

1. Vehicle Expenses

For sole traders and business partners, understanding tax deductions for vehicle expenses is important in 2025. This category includes various costs, including fuel, insurance, road tax, repairs, and maintenance. To ascertain the correct vehicle expense deductions, it’s necessary to maintain a detailed log of it.

This helps you accurately calculate the percentage of vehicle use dedicated to business activities. However, keep in mind that regular travel from home to your primary place of business is not deductible.

Additionally, when you sell your car, a balancing allowance may apply, providing further tax benefits. Regularly updating your business vehicle can be a smart tax strategy since each new purchase opens up opportunities for capital allowances and increased deductions.

2. Home Office Deductions

With more people working from home, home office deductions have become an important way for business owners to save on taxes in 2025. You can claim a portion of your household expenses, such as heating, lighting, council tax, and even a part of your rent or mortgage interest, as business expenses.

The amount you can deduct usually depends on the number of rooms in your home and how much you use them for business. For example, if you have a five-room house and use one room exclusively for work, you could claim 20% of those household bills as a tax write-off.

It’s necessary to keep personal and business expenses separate to justify your claims during any tax audit. This deduction not only lowers your taxable income but also helps cover the costs of maintaining a productive workspace at home.

3. Family Member Salaries

Employing family members in your business can be a smart financial move in the year 2025. If they perform legitimate work, their salaries can be deducted as business expenses. This includes tasks ranging from administrative duties to more specialised roles, depending on their skills and your business needs.

Paying family members can also be tax-efficient, especially if they have no other income. Their earnings may fall under their allowance, meaning they could potentially pay no tax on that income. However, it’s important to ensure that the salary is reasonable and reflects the actual work performed.

To support these deductions, keep detailed records of their roles and salaries. This approach allows you to utilise family resources effectively while staying compliant with tax laws, making it a beneficial strategy for your business.

4. Travel and Subsistence Costs

Travel and subsistence costs are valuable tax write-offs for small businesses that can often be missing. When you travel for business, whether within the UK or internationally, you can deduct related expenses. This includes transport costs, meals, hotel accommodations, and other incidental expenses.

To qualify for these deductions, the business expenses must be entirely for business purposes. Importantly, there is no upper limit on how much you can spend, as long as the costs are reasonable and justifiable. For example, choosing for a higher standard of accommodation or dining does not disqualify the expense.

To claim these deductions successfully, it’s necessary to keep receipts and link your expenses to your business activities. This will help ensure you maximise your self-employed deductions while staying compliant with tax regulations.

5. Childcare Expenses

Childcare expenses can be a valuable tax deduction for small businesses. If you provide childcare facilities, the costs associated with running these facilities are fully deductible. This means you can reduce these expenses from your taxable income, reducing your overall tax bill.

Importantly, if the childcare service is available to all employees, there are no taxable benefits for your children using it. This not only offers a financial advantage but also serves as an attractive employee perk, which can improve staff loyalty and productivity.

To qualify for this deduction, ensure that the facility complies with relevant childcare regulations and is accessible to all employees. While initial and ongoing costs may be high, the tax relief and operational benefits make it a worthwhile investment for your business.

6. Telephone and Internet Costs

Small businesses can benefit from tax deductions on telephone and internet expenses, which are necessary for daily operations. Businesses can deduct the costs associated with business calls and a portion of line rental for home phones used for business purposes. 

For sole traders and partnerships, this includes claiming expenses for business calls made from personal phones. Additionally, companies can provide mobile phones to employees without suffering a taxable benefit in kind, covering both the cost of the device and ongoing service charges. 

It’s important to keep clear records that separate business use from personal use, especially when using personal devices. By accurately tracking these expenses and claiming them correctly, small businesses can achieve important tax savings, increasing their financial health and supporting growth initiatives.

7. Loan Interest and Overdrafts

Small businesses can benefit from tax deductions on interest paid for loans and overdrafts used for business purposes. This interest is considered a legal business expense, which means it can be subtracted from your total income when calculating taxable profits. 

Unlike personal loan interest, which is generally not deductible, interest on loans taken out specifically for your business can help lower your tax bill. It’s necessary to keep clear records showing that the loan or overdraft was used solely for business expenses. 

This will support your claims during tax season and ensure compliance with tax regulations. By strategically managing loan interest and overdrafts, small businesses can optimise their tax position, reduce taxable income, and ultimately save money during tax time.

8. Pension Contributions

Pension contributions are a key area for tax deductions benefiting both retirement planning and tax efficiency. For sole traders and partners, personal pension contributions qualify for tax relief at their highest income tax rate. This means that contributing to a pension not only helps secure your future but also reduces your current tax bill.

For limited companies, pension contributions made on behalf of employees, including directors, are deductible as a business expense. This approach not only supports employees’ retirement but also lowers the company’s taxable profit, making it a smart financial strategy.

Therefore, it’s necessary to be aware of the annual and lifetime limits on pension contributions to avoid unexpected tax charges. By ensuring your contributions stay within these limits, you can maximise tax savings while planning for a secure retirement.

Tax Software for Small Business Tax Management

Tax software is an important tool for accountant and small businesses looking to manage their finances effectively. It simplifies tax management by automating many accounting tasks, making it easier to track income, expenses, and deductions throughout the year.

Additionally, tax software provides real-time insights into your financial health through detailed reports and analytics. This helps you make informed decisions about your small business.

Nomi’s Corporation Tax Software Features

Nomi’s Corporation Tax software is designed to smooth the tax management process for businesses, making it easier for you to handle your tax responsibility efficiently. 

1. Simplifies Tax Management: Nomi’s tax software helps the tax management process, making it easier for small businesses to handle their tax responsibilities efficiently.
2. Automates Accounting Tasks: The software automates many accounting tasks, allowing users to track income, expenses, and deductions throughout the year without manual effort.
3. Unified Accounting System: Nomi provides a fully integrated cloud-based platform that combines corporation tax returns, reducing the need for multiple software solutions.
4. Reduces Errors: Nomi minimises the risk of errors that can occur with manual data entry.
5. Real-Time Insights: The software offers complete reporting and real-time task updates, giving business owners valuable insights into their financial health.
6. Direct Submissions to HMRC: Nomi allows for direct submissions to HMRC, helps in the filing process and ensures compliance with tax regulations.
7. Focus on Growth: By managing taxes efficiently, small business owners can concentrate more on growth and less on paperwork.

We offer a 30-day trial package, allowing you to explore the features and benefits of Nomi firsthand. Experience how our platform can improve your workflow and help you manage corporation tax deadlines effectively. Try Nomi today or book a demo to see how we can support your accounting needs.