Small Business Tax Relief Schemes UK 2025: Complete Guide to Available Reliefs

UK small businesses have access to numerous tax relief schemes in 2025, providing significant opportunities to reduce tax liabilities and improve cash flow. From the generous £1 million Annual Investment Allowance to the enhanced £10,500 Employment Allowance, these reliefs can save businesses thousands of pounds annually.

This comprehensive guide examines all available small business tax relief schemes for 2025, providing detailed information on eligibility, benefits, and how to claim each relief effectively.

Major Tax Relief Increases for 2025

Employment Allowance Doubles to £10,500

One of the most significant changes for 2025 is the Employment Allowance increase from £5,000 to £10,500, announced in the Autumn Budget 2024. This substantial increase helps offset the impact of employer National Insurance changes.

Key Changes:

Amount: Increased from £5,000 to £10,500 annually
Eligibility: The £100,000 liability cap has been removed
Effective Date: From 6 April 2025

The removal of the £100,000 eligibility restriction means all eligible businesses and charities will be able to claim a greater reduction on their secondary Class 1 NICs liability, irrespective of what their secondary Class 1 NICs liabilities were in the previous tax year.

Annual Investment Allowance Remains at £1 Million

The Annual Investment Allowance (AIA) limit remains permanently set at £1 million for qualifying expenditure on plant and machinery, providing businesses with immediate 100% tax relief on eligible purchases.

Complete Guide to Small Business Tax Relief Schemes UK 2025

1. Annual Investment Allowance (AIA) – £1 Million Relief

The Annual Investment Allowance provides 100% tax relief on qualifying plant and machinery purchases up to £1 million per year.

Eligible Items:

Office equipment and computers
Manufacturing machinery and tools
Commercial vehicles (not cars)
Fixtures and fittings

How It Works:

Immediate 100% deduction from taxable profits
Available to all business types (sole traders, partnerships, limited companies)
Must be claimed in the year of purchase
Can significantly improve cash flow for growing businesses

Example: A Manchester tech repair shop purchasing £800,000 worth of diagnostic equipment can claim the full amount under AIA, saving £152,000 in corporation tax (at 19%).

2. Employment Allowance – £10,500 Annual Relief

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £10,500.

2025 Eligibility Changes:

All eligible businesses can now claim (£100,000 cap removed)
Available to businesses and charities
Cannot be claimed by companies with only director-employees earning above the secondary threshold

How to Claim:

Through your payroll software
Indicate ‘yes’ in the ‘Employment Allowance indicator’ box
Must claim every tax year
Reduces monthly employer National Insurance payments

3. Research and Development (R&D) Tax Relief

R&D tax relief supports UK companies working on innovative projects to advance knowledge in science and technology fields.

SME R&D Scheme:

Additional 130% deduction of R&D qualifying costs from taxable profits
For each £100 spent on qualifying R&D, write off £230 when calculating taxable profits
Cash credit at 14.5% if it creates or increases a loss

Enhanced R&D Intensive Support (ERIS): For loss-making SMEs that are R&D intensive, ERIS provides enhanced support where at least 30% of total spending is on R&D.

4. Small Business Rate Relief

Small business rate relief provides significant savings on business rates for eligible properties.

2025 Rates:

Small business multiplier: 49.9p (compared to standard 55.5p)
Rateable value threshold: Properties below £51,000 qualify for the lower multiplier
Full relief: Available if rateable value is less than £15,000 and business uses only one property

Additional Rate Relief:

Retail, hospitality, and leisure: 40% relief for 2025-26 tax year (reduced from 75% in 2024-25)
Enterprise zones: Up to £55,000 per year for five years for qualifying businesses

5. Corporation Tax Marginal Relief

Marginal Relief provides a gradual increase in corporation tax rates between the small profits rate (19%) and the main rate (25%).

Eligibility:

Limited companies with taxable profits between £50,000 and £250,000
From 1 April 2023
Claimed through Company Tax Return
Up to 12 months to amend returns to claim relief

6. Investment Incentive Schemes

Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme gives 30% income tax relief on investments up to £1 million annually in qualifying companies.

Key Benefits:

Income tax relief at 30%
Capital gains tax exemption on qualifying shares
Loss relief against income rather than capital gains
Can defer capital gains by investing in EIS

Seed Enterprise Investment Scheme (SEIS)

Similar benefits to EIS but for smaller, earlier-stage investments with higher relief rates.

7. Capital Allowances and Enhanced Reliefs

Beyond AIA, several other capital allowances provide tax relief:

First-Year Allowances:

100% relief on specific assets including electric cars
Enhanced plant and machinery in enterprise zones
Equipment for use in Freeport tax sites

Writing Down Allowances:

18% annually for main pool assets
6% for special rate pool items
Available when AIA limit exceeded

Business Structure Considerations

Your choice of business structure significantly impacts available tax reliefs. Understanding the differences between limited company and sole trader tax implications is crucial for maximising relief opportunities.

Limited Companies

Access to corporation tax marginal relief
Enhanced R&D relief schemes
Greater flexibility with timing of relief claims
Consider current corporation tax rates when planning

Sole Traders and Partnerships

AIA available for each separate business/trade
Relief claimed against income tax liability
Simpler claiming process through self-assessment

Strategic Planning for Maximum Relief

Timing Considerations

Understanding UK tax deadlines is essential for effective relief planning:

Year-end purchases: Maximise AIA by timing major purchases before accounting period end
Multiple accounting periods: Strategic spreading of large purchases across periods
Cash flow management: Use reliefs to improve working capital

VAT Registration Impact

For businesses approaching VAT registration thresholds, consider how registration affects relief claims and overall tax position.

Compliance and Record Keeping

Documentation Requirements

Maintain comprehensive records for all relief claims:

Purchase invoices and receipts
Proof of business use for assets
Employment records for Employment Allowance
R&D project documentation and costs

HMRC Scrutiny

With increased focus on tax compliance, ensure all claims are:

Properly documented
Genuinely qualifying for relief
Accurately calculated
Timely submitted

Common Pitfalls to Avoid

Ineligible Claims

Cars under AIA: Most cars don’t qualify (electric vehicles may qualify for first-year allowances)
Personal use assets: Items must be used solely for business purposes
Incorrect Employment Allowance claims: Ensure eligibility criteria are met

Timing Errors

Late claims: Some reliefs have strict claiming deadlines
Double relief: Avoid claiming multiple reliefs on the same expenditure inappropriately
Accounting period misalignment: Ensure relief claimed in correct period

Recent Changes and 2025 Updates

Autumn Budget 2024 Impact

The 2024 Autumn Budget introduced several changes affecting small business tax relief:

Employment Allowance doubled to £10,500
Employer National Insurance rate increased to 15%
Secondary threshold reduced to £5,000
Business rates relief for retail, hospitality, and leisure reduced to 40%

Future Considerations

Stay informed about upcoming changes to self-assessment processes and Making Tax Digital requirements that may affect relief claims.

Getting Professional Help

Given the complexity of tax relief schemes, consider professional advice to:

Identify all available reliefs for your business
Ensure optimal claiming strategies
Maintain compliance with HMRC requirements
Plan for future tax efficiency

Many reliefs require specific calculations and documentation that benefit from professional expertise, particularly for R&D claims and complex capital allowance computations.

Conclusion

UK small business tax relief schemes in 2025 offer substantial opportunities for tax savings, with the Employment Allowance increase to £10,500 and the continued £1 million Annual Investment Allowance providing significant benefits for qualifying businesses.

Success with tax reliefs requires understanding eligibility criteria, maintaining proper documentation, and strategic timing of claims. The enhanced Employment Allowance will particularly benefit smaller businesses facing increased employer National Insurance costs, while the generous AIA continues to support business investment and growth.

Regular review of available reliefs and professional advice can help ensure your business maximises tax efficiency while maintaining full compliance with HMRC requirements.

CPD Information: Reading this article may contribute to your Continuing Professional Development (CPD) requirements. Please check with your professional body (ICAEW, ACCA, CIMA, etc.) for specific CPD recognition criteria.

Estimated Reading Time: 15 minutes

Sources and References:

GOV.UK. (2024). “Claim capital allowances: Annual investment allowance.” https://www.gov.uk/capital-allowances/annual-investment-allowance
GOV.UK. (2024). “Employment Allowance: What you’ll get.” https://www.gov.uk/claim-employment-allowance
Bishop Fleming. (2025). “Employment Allowance changes from April 2025.” https://www.bishopfleming.co.uk/insights/employment-allowance-changes-april-2025
GOV.UK. (2024). “Business rates relief: Small business rate relief.” https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief
GOV.UK. (2024). “Changes to the Class 1 National Insurance Contributions Secondary Threshold.” https://www.gov.uk/government/publications/changes-to-the-class-1-national-insurance-contributions-secondary-threshold-the-secondary-class-1-national-insurance-contributions-rate-and-the-empl/changes-to-the-class-1-national-insurance-contributions-secondary-threshold-the-secondary-class-1-national-insurance-contributions-rate-and-the-empl
Bizcap. (2025). “The 2025 UK Annual Investment Allowance.” https://www.bizcap.co.uk/blog/annual-investment-allowance-uk-business-tax-relief
Simply Business. (2025). “Small business tax relief – a guide to reduce your tax bill.” https://www.simplybusiness.co.uk/knowledge/business-tax/small-business-tax-relief/
Saffery Champness. (2025). “Tax relief for investment in UK businesses.” https://www.saffery.com/insights/articles/tax-relief-for-investment-in-uk-businesses/
Alexander Clifford. (2025). “ERIS R&D Tax Relief 2025 | Enhanced R&D Intensive Support.” https://alexanderclifford.co.uk/blog/eris-explained-your-guide-to-rd-tax-relief-in-2025/
Lovewell Blake. (2025). “A guide to small business tax reliefs.” https://www.lovewell-blake.co.uk/services/business-tax/32d93580-444f-4f2a-96a1-7e387d68b5b2/a-guide-to-small-business-tax-reliefs

Disclaimer: This article provides general guidance based on current HMRC requirements and government announcements as of September 2025. Tax relief eligibility and amounts may vary based on individual circumstances. Professional advice should be sought for specific situations and relief claims.

Last Updated: September 2025