Tax Perks SMEs Are Still Missing Out On

Ian Dickinson, tax director at UHY, highlights key reliefs that SMEs often overlook. He explains how to qualify for these important benefits.

By Ian Dickinson

Tax rates have been under review since the Labour government took charge. Many owner-managed businesses are now uncertain about their next steps. The Autumn Budget revealed that SMEs will face more pressure. So, proactive tax planning is now crucial.

While the UK's 25% corporation tax rate grabs attention, the true focus is on the effective tax rate. The government maintains a high headline rate for show. However, it provides targeted reliefs that encourage investment, innovation, and jobs. For SMEs, this means their tax burden can be much lower. But that’s only if they use the available reliefs.

Why SMEs miss out

For smaller businesses, tax reliefs can feel tricky or only for big companies. Many are simple to claim.

Common barriers include:

Lack of time or resources
No dedicated internal tax team
Fear of HMRC scrutiny
Misunderstanding what qualifies
Not having a good tax adviser

The best reliefs available

Here are six reliefs that SMEs should look at straight away to make some great savings.

1. Annual Investment Allowance (AIA)

AIA lets businesses claim 100% tax relief on eligible plant and machinery costs, up to £1 million per year. For most SMEs, this means they can write off nearly all capital spending right away. This includes costs for machinery and IT.

You cannot claim AIA on cars, assets owned before trading began, or items gifted to you.

Example: A £50,000 machinery purchase cuts taxable profits by the full amount. This saves £12,500 in corporation tax at 25%.

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

R&D tax relief helps companies by offering Corporation Tax relief or cash credits. This incentive supports firms that invest in innovative science and technology projects.

Research from RSM UK shows that 99% of tech businesses claimed R&D tax relief in the last year. With the new budget, we expect this number to rise. There are limitations on what fits this relief, so it is important to read HMRC’s guidance.

When you audit your projects for innovation you can include process improvements within your claim.

Example: A furniture company wants to create collapsible furniture. They discover there’s no ready-made material for a fitting or any good alternative. The company wants to create a suitable fitting themselves. This would qualify them for R&D relief. If the furniture was created using elements already established, this would not qualify.

3. Patent Box

This scheme provides a lower Corporation Tax rate of 10% on profits from patented inventions and certain intellectual property rights. This rate is lower than the standard one.

If you hold any patents, you should look to speak to your advisor about applying for this relief.

4. Loss Relief

Loss relief lets businesses offset trading losses against:

Other income (same or previous tax year)
Future profits
Other profits within a group (for companies)
If you control both companies, you can offset losses by structuring them correctly.

Sole traders usually file through self-assessment, but companies do it via their tax return. Loss relief can provide essential flexibility, especially in uncertain trading conditions.

5. National Insurance Contribution (NIC)

From April 2025, eligible businesses can reduce their employer NIC bill by up to £10,500 (previously £5,000). With employer NIC increasing to 15% and the threshold lowering to £5,000, many SMEs might not have to pay NIC at all.

A business that pays £8,000 in annual employer NICs will owe no NICs after claiming the allowance.

Most SMEs can now access this relief, as the previous cap on NIC bills over £100,000 has been removed. You can claim this using your payroll software or HMRC’s EPS.

6. Employing veterans and apprentices

If you hire a veteran, you won’t need to pay Class 1 National Insurance Contributions for their first year of civil work, up to the upper earnings limit.

Example: Hiring a veteran on £35,000 saves around £5,250 in NICs at the new 15% rate.

Right now, there’s no NIC for apprentices under 25 or for workers under 21, up to specific limits. This both reduces payroll costs and nurtures future talent.

Tax-efficient extraction for SME owners

Reducing your tax bill is only part of the picture. Owners should also consider how to extract profits efficiently, including:

Dividends vs salary: Dividends avoid employer NICs and are often taxed at lower rates.
Use of allowances: Including personal allowance, dividend allowance and ISA opportunities
Pension contributions: Deductible for corporation tax and highly effective for long-term planning. – salary sacrifice

Recent budget announcements bring changes. From 2027, ISA limits will be different. Dividend tax rates will also change. Additionally, salary sacrifice will start in 2029. It is important to check official sources, such as HMRC and the government website, to ensure you have the most up to date information.

Example: £20,000 pension contribution saves £5,000 in corporation tax and avoids NICs entirely.

To maximise efficiency and ensure you don’t miss out, review your remuneration strategy annually.

Combining reliefs

Reliefs often work best when they are used together, and by combining these, SMEs could save thousands on their tax bill.

Example: An SME which employs ten people and has a payroll of £400,000 and a National Insurance Contribution of £50,000 could utiilise:

Employment Allowance: saving £10,500 off NIC bill
Veteran hire: saving £5,250 in NIC
Apprentice hire: saving £3,000 in NIC

This combined approach can save a massive £18,750 on NIC. If you claimed an Annual Investment Allowance (AIA) on equipment costing £100,000, you'd save £25,000 in Corporation Tax. This could help support your ongoing growth.

What immediate actions should SMEs be taking?

SMEs have many choices. So, they should check their eligibility for different reliefs

Do you have employer NIC liabilities? - Claim Employment Allowance
Planning capital investment? - Use AIA
Innovating products or processes? - Check R&D relief
Holding patents? - Consider Patent Box
Hiring veterans or apprentices? - Apply NIC exemptions
Reviewing remuneration? - Optimise dividends and pensions

The bottom line

The government’s current tax framework rewards proactive planning. SMEs can reduce their effective tax rate and operating costs by using available reliefs, even if headline tax rates are high.

In a tough, cost-conscious market, these reliefs aren't just helpful—they're essential. SMEs wanting to boost resilience and cash flow can find many opportunities available now. The real challenge is making sure you claim them.

About the author

Ian Dickinson is a tax director at accountancy firm UHY and specialises in business taxation, managing the compliance process, and tax planning advice. The UHY Hacker Young Group is one of the UK’s leading accountancy networks, providing a wide range of accounting, tax and business advisory service to SMEs and larger firms