Top 10 Tax Deductions Small Businesses Often Miss

Running a small business in the UK is rewarding, but it also comes with constant financial pressure, tight margins, and an ever-growing list of HMRC obligations. One of the most common (and costly) mistakes we see is business owners paying more tax than they legally need to simply because certain deductions are missed or misunderstood.

Tax deductions are not loopholes or clever tricks. They are legitimate reliefs built into the UK tax system to recognise the real costs of running a business. When claimed correctly, they can significantly reduce your taxable profit and improve cash flow, especially for small businesses, sole traders, freelancers, and limited company directors.

At Accounting Wise, we work with UK businesses every day and regularly uncover missed deductions during reviews, year-end accounts, and tax returns. From overlooked home office costs to underclaimed capital allowances, these gaps can add up to thousands of pounds over time.

This guide breaks down the top 10 tax deductions small businesses often miss, explaining what you can claim, who it applies to, and how to stay compliant with HMRC rules. Where relevant, we also link to trusted HMRC guidance and practical resources so you can explore each area in more detail.

Whether you are a sole trader completing a Self Assessment tax return, or a limited company director managing Corporation Tax, this article will help you spot opportunities to reduce your tax bill and avoid common pitfalls. If you are ever unsure, it is always worth seeking professional advice. You can also learn more about our tailored support for small businesses on our
UK accounting services page.

1. Home Office Expenses

If you work from home, you may be entitled to claim home office expenses against your tax bill – yet this is one of the most commonly underclaimed deductions among UK small businesses. HMRC allows you to claim a proportion of your household running costs when part of your home is used for business purposes.

Allowable costs can include:

• Electricity and gas
• Water rates
• Broadband and landline (business proportion only)
• Rent or mortgage interest (capital repayments are not allowable)
• Council tax
• Home insurance

The amount you can claim is usually calculated based on:

• The number of rooms used for business
• The amount of time the room is used for work

For example, if you use one room out of five as a dedicated office for most of the working week, you may be able to claim around 20% of certain household costs. However, the room must be used wholly and exclusively for business during that time to avoid complications, particularly for Capital Gains Tax when selling your home.

Alternatively, HMRC offers a simplified expenses method for sole traders and partnerships, which uses a flat monthly rate based on hours worked at home. While easier, this method is not always the most tax-efficient. You can compare both options in HMRC’s official guidance on working from home expenses.

Limited company directors can also claim home office costs, but the rules differ slightly. Claims are typically made via a proportion of household expenses or a modest flat rate to cover heat, light, and power. Claiming too aggressively can raise red flags, so accuracy matters.

Practical tip: Keep clear records of your floor plan, room usage, working hours, and household bills. Digital copies stored alongside your expense records make it far easier to justify your claim if HMRC ever asks for evidence.

If you are unsure which method is best or how much you can safely claim, our accountants regularly review home office expenses as part of our year-end checks. Getting this right can unlock a valuable deduction without risking compliance.

2. Mileage and Vehicle Expenses

Using your car or van for business purposes can unlock a wide range of legitimate tax deductions, yet mileage and vehicle expenses are frequently underclaimed or claimed incorrectly. Whether you are a sole trader, freelancer, or limited company director, HMRC allows you to claim the cost of business-related travel as long as it is properly recorded.

What you can claim depends on how the vehicle is used and how your business is structured. Common allowable vehicle-related expenses include:

• Business mileage
• Fuel costs for business journeys
• Vehicle insurance (business proportion)
• Servicing, repairs, and maintenance
• Road tax
• MOT and breakdown cover

For sole traders and partnerships, HMRC offers two main options:

• Simplified mileage allowance – 45p per mile for the first 10,000 business miles in the tax year, then 25p per mile thereafter
• Actual cost method – claim the business percentage of all running costs listed above

You must choose one method per vehicle and stick with it. The mileage method is often simpler, but the actual cost method may result in a higher deduction if your running costs are significant. HMRC’s official guidance on vehicle expenses and mileage explains both approaches in detail.

Limited company directors usually claim mileage rather than fuel costs directly. The company reimburses business mileage at HMRC-approved rates, which avoids triggering a taxable benefit. Claiming fuel without careful planning can lead to a fuel benefit charge, which is often expensive. You can explore this further using Accounting Wise’s company car and fuel benefit calculator.

It is important to note that only business journeys qualify. Travel between your home and a permanent workplace is classed as commuting and is not allowable. However, trips to temporary workplaces, client meetings, training sessions, and business errands generally do qualify.

Practical tip: Keep a mileage log showing the date, destination, purpose of the trip, and miles travelled. Using a mileage tracking app or digital log makes record-keeping far easier and provides strong evidence if HMRC ever reviews your claim.

Vehicle expenses are an area HMRC scrutinises closely, so accuracy is essential. If you are unsure which method suits your situation or whether your journeys qualify, professional advice can prevent costly mistakes while ensuring you claim everything you are entitled to.

3. Professional Services

Many small business owners forget just how broad the professional services deduction can be. Fees paid to external experts are fully allowable for tax purposes, provided the services are incurred wholly and exclusively for your business. This makes professional costs one of the most straightforward, yet often underclaimed, deductions available.

Common deductible professional fees include:

• Accountancy and bookkeeping fees
• Tax return preparation and advisory services
• Legal fees related to contracts, disputes, or compliance
• Business consultancy and strategy advice
• Payroll and HR advisory services
• Company formation and restructuring advice

For limited companies, professional fees are usually deducted when calculating Corporation Tax. For sole traders and partnerships, they reduce taxable profits reported through Self Assessment. In both cases, the key test is whether the service relates directly to running or growing the business.

It is important to note that not all legal fees are automatically allowable. For example, costs connected to buying or selling property, or forming the initial share capital of a company, may be treated as capital expenses rather than day-to-day deductions. HMRC’s guidance on professional fees and legal costs provides clarity on how different costs are treated.

Professional advice often saves far more than it costs by identifying tax efficiencies, avoiding penalties, and keeping your business compliant as regulations change. In many cases, fees paid to accountants and advisors can indirectly pay for themselves through improved tax outcomes and reduced risk.

Practical tip: Keep copies of all invoices, engagement letters, and agreements for professional services. Storing these alongside your accounting records ensures you can easily justify the expense if queried and helps your accountant accurately categorise costs at year end.

If you are unsure whether a professional fee is allowable or how it should be treated, getting clarity early can prevent errors later. A quick review can make the difference between missing a deduction and maximising the relief available.

4. Marketing and Advertising Costs

Marketing and advertising are essential for attracting customers and growing revenue, yet many small businesses fail to claim the full range of costs they are entitled to. In most cases, marketing and advertising expenses are fully deductible, provided they are incurred wholly and exclusively for business purposes.

Allowable marketing and advertising costs can include:

• Social media advertising (Facebook, LinkedIn, Instagram, Google Ads)
• Website design, development, and ongoing hosting
• Email marketing platforms and CRM tools
• Search engine optimisation (SEO) and content creation
• Printed materials such as business cards, flyers, brochures, and banners
• Promotional events, trade shows, and exhibitions
• Branded merchandise used for genuine promotional purposes

Digital marketing costs are commonly overlooked, particularly monthly subscriptions for tools such as email marketing software, social scheduling platforms, analytics tools, and paid plugins. These ongoing costs can add up quickly over a year and should be captured accurately in your accounts.

It is important to distinguish between advertising and entertainment. While promoting your business is allowable, entertaining clients or providing hospitality is generally not tax-deductible. HMRC’s guidance on business advertising and promotion explains where the line is drawn.

For limited companies, marketing costs reduce Corporation Tax. For sole traders, they reduce taxable profits through Self Assessment. In both cases, consistent categorisation helps improve reporting and gives you better visibility over return on investment.

Practical tip: Set up a dedicated marketing expense category in your accounting software and attach invoices, receipts, and contracts as you go. This makes tracking spend far easier and ensures nothing is missed at year end.

Well-documented marketing costs not only reduce your tax bill but also help you understand what is driving growth in your business. If you are unsure whether a specific promotional cost is allowable, a quick review can prevent misclassification and missed deductions.

5. Training and Education

Investing in training and education is often essential for keeping your business competitive, compliant, and up to date, yet many small business owners are unsure what can be claimed. In the right circumstances, training and education costs are fully tax deductible, provided they relate directly to your existing business activities.

Allowable training and education expenses can include:

• Professional courses and refresher training
• Industry-recognised certifications and accreditations
• Continuing professional development (CPD)
• Workshops, seminars, and conferences
• Trade shows and industry events
• Online courses and learning platforms relevant to your role

The key rule is that the training must maintain or improve skills you already use in your business. Training that helps you perform your current work better is usually allowable. However, courses that teach an entirely new skill or prepare you for a different trade are typically treated as capital or personal expenditure and are not deductible.

This distinction is particularly important for sole traders and freelancers. HMRC’s guidance on training and education expenses explains when costs are allowable and when they are not.

For limited companies, there can be additional advantages. Training provided to employees or directors may be deductible for Corporation Tax and, in many cases, exempt from National Insurance and Benefit in Kind charges, provided it relates to the business. This makes structured training a tax-efficient way to invest in people.

Practical tip: Keep receipts, invoices, course outlines, and syllabuses that clearly show how the training relates to your business. This documentation helps demonstrate the business purpose of the expense if HMRC ever reviews your claim.

Training costs are often reviewed closely by HMRC, so clarity is essential. If you are planning significant investment in education or are unsure whether a course qualifies, seeking advice in advance can help you claim confidently and avoid unexpected disallowances.