Tax Deductions UK 2025/26: How to maximise your Self-Assessment Tax savings?

Paying less tax legally is possible when you understand available deductions. The UK tax system offers numerous tax deductions and reliefs for savvy taxpayers. Many individuals and businesses overpay thousands in tax annually simply because they don’t know what expenses tax deductible are or what can you claim back on tax.

This comprehensive guide reveals top tax savings in 2025/26, including eligible tax deductions that many people overlook. You’ll discover practical strategies to maximise your self-assessment tax savings and learn how to save tax in the UK through legitimate means.

Understanding UK Tax Allowances for 2025/26

Personal Allowance Explained

The standard personal allowance which is part of your tax allowances in the UK stands at £12,570 for 2025/26. You earn this amount tax-free before paying any income tax. However, this allowance decreases if your income exceeds £100,000.

Planning your income strategically helps maximise this valuable allowance and is one of the key tax breaks available to all UK taxpayers. Income between £12,571 and £50,270 is taxed at 20%, making it essential to plan around these eligible tax deductions and allowances.

For incomes between £100,000 and £125,140, the personal allowance is tapered away at a rate of £1 lost for every £2 of adjusted net income over £100,000, creating an effective marginal rate spike. Consider timing bonuses, pension contributions, and Gift Aid donations to reduce adjusted net income and preserve the allowance.

Income Tax Bands and Rates

Understanding which tax band, you fall into is important for planning. Taxable income between £12,571 and £50,270 is taxed at 20%. Higher rates apply to earnings above this threshold.

Income Range	Tax Rate	Tax Band
£0 – £12,570	0%	Personal Allowance
£12,571 – £50,270	20%	Basic Rate
£50,271 – £125,140	40%	Higher Rate
Over £125,140	45%	Additional Rate

Source: Income Tax Rates and Personal Allowances

Note: Different thresholds apply in Scotland for non‑savings, non‑dividend income, though UK‑wide rates generally apply to savings and dividends; check current Scottish bands if resident in Scotland. Dividend and savings income have separate allowances (Dividend Allowance and Personal Savings Allowance) and rates, so plan across income types rather than just salary.

Need help optimising your tax allowances and filing accurately? Our Self Assessment tax return accountants can help you claim every allowance you’re entitled to.

Marriage Allowance Benefits

Married couples or civil partners can transfer part of their personal allowance. This transfer can save up to £252 annually in tax. It’s ideal when one partner earns less than the personal allowance.

Eligibility requires the transferor to be a non‑taxpayer and the recipient to be a basic rate taxpayer; backdating claims is possible for up to four tax years, potentially increasing total savings.

Capital Gains Tax Exemption

Each individual receives an annual capital gains tax relief exemption. For 2025/26, this exemption is £3,000 for individuals. You can sell assets up to this value without paying tax.

Spouses and civil partners can transfer assets between themselves on a no‑gain/no‑loss basis to use two CGT exemptions and potentially lower rate bands before a disposal.

Bed‑and‑spouse and timing disposals across tax years can help manage gains; remember that disposals of residential property may attract higher CGT rates and require reporting within HMRC deadlines.

Self-Assessment expenses you can claim

Understanding what tax deductions are is essential for reducing your tax bill. Tax deductions are expenses you can subtract from your income before calculating the tax owed. This section covers the complete list of tax deductions available to self-employed individuals and businesses.

Ensure records are accurate, wholly and exclusively for business, and supported by receipts or digital copies to remain compliant. Remember that capital items may be claimed via capital allowances or the Annual Investment Allowance rather than as day‑to‑day expenses.

Office Equipment and Supplies

Business-related purchases qualify as allowable business for sole traders. Computers, desks, stationery and office furniture are all claimable. These cost reduce your taxable income when claimed correctly and are essential tax-deductible expenses in the UK.

Note: Where items have dual personal and business use, claim only the business proportion. Larger equipment may fall under the Annual Investment Allowance, potentially giving 100% relief in the year of purchase.

Travel and Transport Expenses

Business travel cost significantly reduce your tax bill. Fuel cost, public transport fares and parking fees are allowable. Hotel stays and meals during business trips also qualify as part of employment expenses tax return.

Ordinary commuting to a regular workplace is not allowable; only travel to temporary workplaces or for business purposes qualifies. Congestion charges, tolls, and necessary business taxis are allowable, but fines and penalties are not.

Mileage Claims

HMRC allows 45p per mile for the first 10,000 business miles. After 10,000 miles, the rate drops to 25p per mile. Maintain a detailed mileage log recording every business trip.

Choose either simplified mileage rates or actual running cost (plus capital allowances); do not mix methods for the same vehicle in the same period. Record date, purpose, start/end locations, and miles for each journey to substantiate claims.

Vehicle Type	First 10,000 Miles	Additional Miles
Cars and Vans	45p per mile	25p per mile
Motorcycles	24p per mile	24p per mile
Bicycles	20p per mile	20p per mile

If claiming mileage, do not also claim fuel or other running cost for that vehicle. Electric vehicles can also use approved mileage rates for cars and vans.

Home Office Expenses

Working from home lets self‑employed people claim a fair share of household cost as tax‑deductible business expenses. Claim a proportion of rent or mortgage interest, utilities, internet and phone, plus heating, based on genuine business use. Keep clear records and apply a consistent, reasonable split using rooms used and/or time worked to evidence the calculation.

Alternatively, use HMRC’s simplified flat‑rate method if tracking actual cost is complex. Evidence apportionment with reasonable, consistent methods (rooms‑used or time‑based) and avoid creating business rates or CGT implications by keeping mixed use.

Simplified Expenses Methods

HMRC provides flat rates based on hours worked from home.

Hours Worked from Home	Monthly Allowance
25-50 hours	£10
51-100 hours	£18
100+ hours	£26

Note: If tracking actual bills is heavy, use HMRC’s simplified flat‑rate for self‑employed: £10 per month for 25–50 hours, £18 for 51–100, and £26 for 101+ hours worked from home, while claiming phone and broadband separately by business proportion.

Maintain mixed use of rooms to avoid business rates and potential CGT restriction on Private Residence Relief from exclusive business use. For the official rules, see HMRC’s simplified expenses guidance and CGT manual on non‑residential use.

Marketing and Advertising Cost

All promotional expenses for your business are tax-deductible when incurred wholly and exclusively for trade, including website development, domain/hosting, online ads, social media ads, print ads, design, copywriting, landing pages, PPC, directory listings, business cards, mailshots, and website maintenance.

Promotional merchandise and free samples used to win or retain customers are allowable, as are relevant trade journals and professional memberships tied to the business. Keep clear records linking each spend to promotion and exclude any personal element.

Entertainment of clients or suppliers and event hospitality are not allowable as marketing; exclude them from claims. Apply the “wholly and exclusively” test and consider capital treatment if a cost creates an enduring asset. For returns, use HMRC’s “Marketing, entertainment and subscriptions” guidance and classify correctly.

Training and Professional Development

Business-related courses and certifications are claimable expenses. Training that improves your existing business skills qualifies. Professional subscriptions and memberships are also allowable.

Note: Training to start a new trade is usually not allowable, whereas updating or improving current skills is. Approved professional body subscriptions are typically allowable if relevant to the business.

Insurance Premium

Business insurance premium reduce your taxable income substantially. Public liability insurance, professional indemnity insurance and employer’s liability insurance premium is fully deductible.

Vehicle insurance attributable to business use can be apportioned; private elements are not allowable. Key person insurance may have different treatment depending on policy structure and beneficiaries, check specifics before claiming.

Legal and Professional Fees

Accountant fees for preparing tax returns are allowable expenses. Bookkeeping services, financial advice fees and legal fees for business contracts also qualify.

Legal cost relating to acquiring property or capital assets are capital in nature and not deductible as revenue expenses. Debt collection fees and compliance advice linked to the trade are generally allowable.

Phone and Internet Expenses

Business phone and internet cost are legitimate allowable expenses. A separate business line allows you to claim full cost. Mixed personal and business use requires proportional claiming.

For a sole trader, a dedicated business mobile used only for business can typically be claimed in full. Landline and broadband with mixed use should be split on a fair and reasonable basis, documented in working papers.

Bank Charges and Interest

Business bank account charges are fully tax-deductible expenses. Credit card charges for business purchases and interest on business loans also qualify.

Interest on personal borrowing used for business may be allowable if the funds are introduced into the business and properly evidenced. Overdraft fees and payment processing charges related to sales are generally allowable.

Stock and Raw Materials

Items purchased to create products or services are deductible. Raw materials, ingredients for your business and goods bought specifically for resale are fully allowable.

Opening and closing stock must be accounted for correctly to calculate cost of sales. Write‑downs for obsolete or damaged stock may be allowable when evidenced.

Staff Cost and Wages

Employee salaries and wages are major allowable expenses. Bonuses, commissions, employer’s National Insurance and pension contributions for staff reduce your tax liability.

Use PAYE correctly and submit Real Time Information on time to avoid penalties. Employer pension contributions must meet scheme rules; consider relief via salary sacrifice arrangements where appropriate.

Subcontractor and Freelancer Fees

Payments to subcontractors are legitimate business expenses. Ensure you follow Construction Industry Scheme (CIS) rules when paying subcontractors.

Verify subcontractor status and apply the correct CIS deduction rate; keep monthly CIS returns and statements. For IR35/off‑payroll working, assess status to ensure labour is treated correctly for tax.

Learn more about how IR35 rules impact contractors and companies in our detailed IR35 compliance guide.

Advanced Tax Saving Strategies for 2025

Pension Contributions for Tax Relief

Contributing to pensions reduces your taxable income significantly and represents excellent savings for income tax. Personal pension contributions receive tax relief automatically. The maximum annual contribution with tax relief is £60,000.

The £60,000 Annual Allowance may be reduced by tapering for high earners, where threshold and adjusted income limits are exceeded, the allowance can taper to a minimum of £10,000. Carry forward of unused pension allowance from the previous three tax years can boost allowable contributions if already a scheme member in those years. Relief is given via relief‑at‑source for personal pensions (basic rate added by the provider) with higher/additional rate relief claimed through Self Assessment, while some workplace schemes use net pay arrangements.

How Pension Tax Relief Works?

• Basic-rate taxpayers: £1,000 contribution cost only £800
• Higher-rate taxpayers: £1,000 contribution cost only £600
• Additional-rate taxpayers: £1,000 contribution cost only £550

Ensure contributions do not exceed 100% of relevant UK earnings for personal contributions (ignoring employer contributions) and monitor the Money Purchase Annual Allowance if triggered by flexible access to pensions. Consider salary sacrifice to exchange gross pay for employer pension contributions, saving employee NI and potentially employer NI (which can be reinvested).

ISA Contributions for Tax Free Growth

Individual Savings Accounts (ISA) offer completely tax free investment growth. You can contribute up to £20,000 annually into ISAs. Interest, dividends and capital gains inside ISAs are tax-free.

The overall ISA allowance can be split across Cash, Stocks & Shares, Innovative Finance, and Lifetime ISA (subject to product limits and eligibility).

Lifetime ISAs offer a 25% government bonus on up to £4,000 per year for first‑time home purchase or retirement from age 60, subject to withdrawal rules and penalties.

Track remaining annual allowance, set up monthly contributions, and ensure ISA transfers use official transfer processes to preserve tax benefits.

Annual Investment Allowance (AIA)

As per HMRC’s AIA rules, Businesses can claim 100% tax relief on qualifying asset purchases. The AIA limit for 2025/26 is £1,000,000 annually. Equipment, machinery, and vehicles often qualify for this allowance.

AIA generally excludes cars; consider first‑year allowances where applicable, especially for low‑emission assets.

Time purchases near year‑end carefully to align with accounting periods and maximise relief in the desired year.

Capital Allowances on Business Assets

Assets not covered by AIA receive Writing Down Allowances. Zero-emission vehicles qualify for 100% first-year allowances.

Main rate pool typically attracts a 18% writing down allowance, while the special rate pool (e.g., integral features) attracts 6%. Keep detailed fixed asset registers and claim enhanced allowances where criteria are met, such as structures and buildings allowance for qualifying construction cost.

Enterprise Investment Schemes (EIS)

EIS investments Schemes provide up to 30% income tax relief on qualifying subscriptions up to £1,000,000, rising to £2,000,000 where the amount over £1,000,000 is invested in knowledge‑intensive companies.

CGT exemption on disposal applies if shares are held for at least three years and the investor obtained EIS income tax relief that has not been withdrawn.

CGT deferral lets gains from other assets be deferred by reinvesting into EIS shares, typically for gains made up to three years before or one year after the EIS subscription.

Loss relief can be claimed against income or capital gains for a loss‑making EIS investment, after deducting any EIS income tax relief already received.

Venture Capital Trusts (VCTs)

VCT investments offer 30% income tax relief on new share subscriptions. The maximum annual investment eligible for relief is £200,000 per tax year, limited to the investor’s actual income tax liability for that year.

Dividends from VCTs are tax‑free for investors and generally do not need to be reported on a tax return.

To retain the 30% income tax relief, VCT shares must typically be held for at least five years; disposing earlier can trigger a clawback of relief.

Gains on disposal of qualifying VCT shares are generally exempt from Capital Gains Tax, independent of the five‑year income tax relief holding condition.

Gift Aid and Charitable Donations

Donating via Gift Aid lets charities reclaim 25p for every £1 donated, provided the donor pays at least that much UK Income Tax and/or CGT for the year.

Higher and additional rate taxpayers can claim extra relief through Self-Assessment by extending the basic and higher rate bands by the grossed‑up donation (treating £1 as £1.25), giving relief equal to the difference between their marginal rate and 20%.

Gift Aid can be carried back by election so a donation made after 5 April can be treated as made in the previous tax year if included on the original return submitted by the filing deadline.

If insufficient tax is paid to cover the charity’s reclaim, the donor may need to pay the shortfall.

Tax Planning for Limited Companies

Salary vs Dividends Strategy

Company directors can optimise income by combining a modest salary with dividends, since dividends are taxed at lower rates than employment income and are not subject to employee NICs.

Pay yourself a salary up to the tax-free amount to keep your state pension rights while paying little or no National Insurance, then take extra income as dividends from your company’s profits after tax.

Plan to use both your Personal Allowance and Dividend Allowance. Dividends are taxed at 8.75% (basic rate), 33.75% (higher rate) or 39.35% (additional rate), but you can only pay dividends from profits left after paying corporation tax.

The best balance between salary and dividends depends on your total income and personal circumstances, so check it annually to stay tax-efficient and avoid paying more than necessary.

Employer Pension Contributions

Employer pension contributions can usually be deducted from corporation tax if they are a genuine business expense and part of a reasonable remuneration policy.

These contributions do not attract employer or employee National Insurance, so contributing to a pension instead of paying salary can create significant National Insurance savings.

Contributions must stay within pension allowance limits, including the annual allowance (typically £60,000, though this can vary with income and carry-forward rules) and any scheme restrictions. Very large one-off payments may need clear justification regarding timing and overall remuneration.

Salary sacrifice arrangements, where employees exchange part of their salary or bonus for employer pension contributions, can reduce Income Tax and National Insurance for employees and National Insurance for employers, increasing the overall benefit for everyone.

The way personal tax relief works depends on the pension scheme type, but employer contributions themselves are not taxed as a benefit for employees.

VAT Schemes for Tax Efficiency

The Flat Rate Scheme simplifies VAT by applying a fixed percentage to VAT‑inclusive turnover, reducing admin but limiting input VAT recovery except certain capital assets; limited‑cost traders use 16.5%.

The Cash Accounting Scheme improves cash flow by paying VAT only when customers pay and reclaiming when suppliers are paid, aligning VAT with receipts and reducing bad‑debt risk.

Choose based on turnover, input VAT, margins, and payment terms to fit the business model.

VAT Schemes: HMRC VAT Schemes

Record Keeping for Self-Assessment Success

Essential Documentation Requirements

Proper records are essential to claim tax deductions confidently. Keep receipts, invoices and bank statements for at least six years. Digital records are acceptable if stored securely and accessibly.

Best Practices for Expense Tracking

Use accounting software to track expenses throughout the year. Separate business and personal bank accounts for clarity. Photograph receipts immediately to prevent loss or fading.

Mileage Log Requirements

Maintain detailed records of all business journeys undertaken. Note the date, start point, destination and purpose. Record actual miles travelled for accurate mileage claims.

Mileage Record Template: HMRC Mileage Log Example

Common Tax Filing Mistakes to Avoid

Missing the Filing Deadline

The online Self-Assessment filing deadline is 31 January; paper returns are due by 31 October, and tax due must be paid by 31 January or interest and late payment penalties apply.

An automatic £100 late filing penalty applies immediately after the filing deadline, with additional penalties at 3, 6, and 12 months late.

Payments on account are due on 31 January and 31 July when required, typically based on the prior year’s liability above HMRC’s threshold; budgeting for both dates helps avoid penalties and interest.

Submitting by 30 December allows collection through PAYE where eligible; otherwise, pay by 31 January to avoid late payment charges.

File Your Self-Assessment: HMRC Self-Assessment Online

Failing to Claim Allowable Expenses

Many taxpayers miss legitimate expenses they could claim. These missed tax deductions can cost hundreds or thousands of pounds annually. Review all business expenditure carefully before filing returns. Don’t leave money on the table through oversight.

Ensure expenses are wholly and exclusively for business and apportion any mixed-use cost reasonably. Cross‑check bank statements, receipts, and subscription lists to capture recurring software, payment processing, and small tools often overlooked.

Incorrect Expense Categorisation

Misclassifying expenses can trigger HMRC enquiries and investigations. Understand which expenses belong in which categories clearly. Seek professional advice if uncertain about categorisation.

Choose consistently between cash basis and traditional (accruals) accounting, as categorisation and timing differ. Capital items should generally be treated under capital allowances rather than day‑to‑day expenses.

Not Keeping Adequate Records

Poor record-keeping makes claiming expenses extremely difficult. HMRC can disallow expenses without supporting documentation. Implement good record-keeping systems from day one.

Keep records for at least 5 years after the online filing deadline and store digital copies of receipts for audit readiness.

Use cloud accounting with bank feeds and mileage/home‑working logs to automate evidence collection.

Claiming Personal Expenses as Business

Never claim personal expenses as business deductions. HMRC takes a dim view of this practice. It can result in investigations, penalties and prosecution.

Client entertainment and most fines are not allowable even if paid via the business. Document apportionments for phone, internet, vehicle use, and home office to prevent accidental over-claiming.

Expense Category	Examples	Simplified Option?	Official Guidance
Office Cost	Equipment, supplies, furniture	No	HMRC Link
Travel	Mileage, fares, accommodation	Yes	HMRC Link
Home Office	Utilities, rent, internet	Yes	HMRC Link
Marketing	Advertising, website, promotions	No	HMRC Link
Training	Courses, certifications, books	No	HMRC Link

Tax-Saving Checklist for 2025/26

• Maximise the £12,570 personal allowance; consider income shifting within couples.
• Use Marriage Allowance to transfer £1,260 if the recipient is a basic-rate payer.
• Contribute to pensions up to £60,000; check taper above £260,000 adjusted income.
• Use the full £20,000 ISA limit across permitted ISA types.
• Claim only wholly and exclusively business expenses, with evidence retained.
• Keep complete records and receipts to substantiate all claims.
• Use simplified home-working expenses if a sole trader and eligible.
• Log business mileage accurately and claim HMRC rates.
• Make Gift Aid donations and claim higher/additional-rate relief where due.
• Use the £3,000 CGT annual exempt amount (trusts £1,500).
• Time disposals across tax years to optimise CGT bands and allowances.
• Review salary vs dividends; factor NI thresholds, CT, and £500 dividend allowance.
• Claim Annual Investment Allowance on qualifying plant and machinery.
• Consider EIS/VCT for 30% income tax relief, subject to limits and holding rules.
• File Self-Assessment: paper by 31 Oct 2026; online and payment by 31 Jan 2027.

Inheritance Tax Planning Considerations

Annual Gift Allowance

You can give away £3,000 per year tax-free; if unused, it can be carried forward one tax year and must be used after the current year’s £3,000, plus small gifts of £250 per person are also exempt but cannot be combined with other exemptions for the same recipient in the same tax year.

Seven-Year Rule

Gifts made more than seven years before death are tax-free; if death occurs between 3 and 7 years, taper relief may reduce the tax due on chargeable gifts, noting that potentially exempt transfers become chargeable only if death occurs within seven years.

Residence Nil-Rate Band

Passing a qualifying home to direct descendants increases the IHT threshold; the residence nil-rate band is £175,000 per person, transferable to a spouse/civil partner, and tapers by £1 for every £2 an estate exceeds £2 million, with downsizing provisions potentially preserving the relief.

When to seek Professional Tax Advice?

Complex Income Sources

Seek self-assessment tax advice if you earn from multiple sources such as freelance work, property rental, investments, or overseas income. A tax adviser can help you correctly report and optimise deductions.

Capital Gains or Asset Sales

When you sell shares, property, or other valuable assets, the capital gains calculation can be tricky. Professional advice ensures compliance and helps reduce unnecessary liabilities.

Change in Employment or Residency

If you move abroad, become self-employed, or change your tax residency, expert guidance ensures you meet the latest reporting requirements.

Uncertain Deductions and Allowances

When unsure about eligibility for reliefs, expenses, or allowances, an adviser can clarify rules and help you avoid penalties.

HMRC Queries or Investigations

If you receive a notice from HMRC regarding your tax return, seeking professional assistance can help resolve disputes promptly and accurately.

Conclusion

Understanding UK tax deductions significantly reduces your annual tax bill. The 2025/26 tax year offers numerous opportunities for tax savings through strategic planning. By claiming all eligible tax deductions and using available tax credits and deductions, you can legally reduce your tax burden.

Don’t leave money on the table through lack of knowledge. Professional advice often saves far more than it cost. Start implementing these strategies today to keep more of your earnings.

Ready to take the next step? Email: [email protected] or call us at 01923 856 008 to speak with our team today.

Frequently Asked Questions