5 Tax Reliefs UK Small Businesses Forget to Claim

Introduction to Tax Reliefs

Every year, thousands of small businesses in the UK overpay tax simply because they aren’t aware of the reliefs available to them. This is especially true in construction and engineering, where large purchases, innovation, and payroll costs are the norm. HMRC won’t tap you on the shoulder and remind you to claim, it’s up to you or your accountant to make sure nothing is left behind.

At Jones Financial Accounts (JFA), we regularly see SMEs missing out on tax savings worth tens of thousands of pounds. That’s money that could pay for new machinery, expand your team, or strengthen cash flow. In this blog, we’ll highlight the most common tax reliefs SMEs overlook, explain who’s eligible, give practical examples, and tackle common misconceptions that stop businesses from claiming.

1. Capital Allowances

What It Is

Capital allowances let you claim tax relief on the cost of buying or investing in assets for your business. In simple terms, when you buy items like machinery, vans, or even computer systems for business use, the government allows you to offset some (or all) of that cost against your taxable profit. This reduces the amount of corporation tax you pay. For construction and engineering firms, where investment in heavy equipment and tools is common, this is a powerful way to reduce tax bills and manage cash flow more effectively.

Eligibility

Limited companies, sole traders, and partnerships can all claim, as long as the purchase is “wholly and exclusively” for business use. Common items for construction firms include excavators, scaffolding, and IT systems.

Short Example

A construction business with £1m turnover invests £200,000 in new plant machinery. With capital allowances, they offset the cost against taxable profit, saving around £50,000 in corporation tax. That’s enough to cover the annual salary of a skilled site manager.

Misconceptions

Many businesses assume capital allowances only apply to large, expensive items. In reality, smaller purchases like laptops, printers, or even protective site equipment may qualify. Another mistake is believing relief happens automatically — you must claim it in your tax return.

2. Annual Investment Allowance (AIA)

What It Is

The Annual Investment Allowance (AIA) is a specific type of capital allowance designed to encourage businesses to invest in themselves. AIA lets you deduct the full value of qualifying assets from your taxable profit, up to a generous annual limit of £1 million.

Unlike standard capital allowances where relief is spread over several years, AIA provides the full benefit immediately, giving businesses faster access to cash savings. For construction and engineering firms, this can be especially helpful when making large investments in tools, vehicles, or site machinery.

Eligibility

Most UK businesses can claim AIA, including limited companies and partnerships. The key condition is that the item must be used for business purposes. Items like vans, diggers, scaffolding, or manufacturing machinery are all typical qualifying assets.

Short Example

An engineering company invests £300,000 in new manufacturing equipment. Instead of spreading the tax benefit over several years, AIA allows them to deduct the full £300,000 in the year of purchase, saving £75,000 in corporation tax instantly.

Misconceptions

AIA is often confused with capital allowances. Some owners think they are separate, but AIA is part of the same system, it just allows for faster relief. Another misconception is that the allowance carries forward if unused. It doesn’t. Timing purchases strategically before year-end is vital to maximise the benefit.

3. Research & Development (R&D) Relief

What It Is

R&D tax relief is one of the most valuable, yet most overlooked, reliefs for small businesses. It’s designed to reward companies that innovate, whether by creating new products, improving processes, or developing more efficient methods of working. While it’s often associated with labs and tech companies, it applies equally to construction and engineering.

If you’ve solved a problem in a new way, tested materials, built prototypes, or reduced waste through unique processes, you may qualify. The relief reduces your corporation tax bill or, in some cases, provides a cash credit.

Eligibility

Limited companies that have invested in qualifying R&D projects. Construction firms trialling new eco-friendly building techniques, or engineering firms designing new prototypes, often qualify.

Short Example

A £1.2m-turnover engineering company spends £100,000 developing a new production method to cut material wastage. With R&D relief, they claim back around £25,000–£33,000. That’s cash which can be reinvested directly into their next project.

Misconceptions

The biggest myth is that R&D only applies to “tech or science.” Many construction businesses don’t realise that site process improvements, testing alternative materials, or building digital tools for project management can all qualify. Another common mistake is under-recording costs, staff time, materials, and subcontractor costs may all count toward the claim.

4. Employment Allowance

What It Is

Employment Allowance is designed to reduce the cost of employing staff by cutting your National Insurance bill. Eligible businesses can reduce their annual National Insurance Contributions (NICs) by up to £5,000. For SMEs in construction and engineering, where payroll is one of the biggest costs, this relief can make a meaningful difference. It’s particularly useful for smaller firms scaling up their teams but watching every penny of overheads.

Eligibility

Businesses that paid less than £100,000 in employer NICs in the previous tax year. Limited companies, partnerships, and charities are all eligible. Most SMEs in construction and engineering fit comfortably into this bracket.

Short Example

A construction firm with 15 employees pays £40,000 annually in employer NICs. Employment Allowance reduces this by £5,000, instantly freeing up cash for training, PPE, or safety improvements on-site.

Misconceptions

Some owners assume the allowance is applied automatically, it isn’t. You have to actively claim it through your payroll software or accountant. Others believe subcontractors under CIS are included. They’re not, the allowance applies only to employees on payroll.

5. Business Rates Relief

What It Is

Business rates relief reduces the tax you pay on business premises. It applies to offices, storage units, or small yards, and is particularly valuable for businesses with modest premises. Local councils run different schemes such as small business rates relief, rural relief, or sector-specific schemes. This is often a missed opportunity for construction firms who assume relief only applies to retail or high street shops.

Eligibility

SMEs with premises under certain rateable values. For example, a small office for a construction consultancy or a storage unit for tools and machinery often qualify. Rules vary by council, so checking your local scheme is essential.

Short Example

A construction consultancy pays £12,000 annually in business rates for their office. With small business rates relief, they reduce their bill by £5,800, money that can be redirected toward software, training, or marketing.

Misconceptions

Many SMEs assume they’re not eligible because they don’t operate from a shop. That’s false. Offices, workshops, and even storage yards can qualify. Another misconception is assuming councils apply the relief automatically, in most cases, you have to apply directly.

At JFA, we help construction and engineering businesses unlock every relief they’re entitled to, saving thousands in tax and freeing up cash for growth. If you’re unsure whether you’ve claimed everything, book a free tax review with us today.

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