- A tax exemption removes income or a supply from tax entirely, which is different from a relief or allowance that reduces what you owe.
- VAT exemption and zero-rating look similar but differ in one big way: zero-rated businesses can reclaim input VAT, exempt businesses cannot.
- Most business tax savings come from reliefs and allowances you have to claim actively, so missing the claim means overpaying HMRC.
Tax exemptions in the UK let you earn income, hold assets, or sell certain goods without paying tax on them, and for a business they can be worth thousands a year. The catch is that most of what people call an “exemption” is actually a relief or an allowance you have to claim, and the rules differ for each tax.
This guide covers the exemptions and reliefs a UK business can realistically use in 2026, from VAT to corporation tax, plus who qualifies and how to claim. If you’d rather hand the whole thing over, Sleek’s accounting services make sure nothing gets missed.
What does ‘tax exempt’ mean?
Being tax exempt means income, a gain, or a supply falls entirely outside the scope of a tax, so no tax is due on it at all. That’s different from a relief or an allowance, which reduces a bill you’d otherwise pay rather than removing it.
The distinction matters because it changes how you treat the money. Exempt income doesn’t get taxed and often doesn’t even need reporting in the same way. A relief, by contrast, has to be claimed, usually on a return, and if you don’t claim it you simply pay more.
Here’s the quick version:
- Exemption: the income or supply is outside the tax net, so nothing is owed.
- Zero-rating (VAT only): the supply is taxable, but at 0%.
- Relief: your bill is reduced, often to nil, but the item is still within the tax system.
- Allowance: a fixed slice of income or spend that’s tax-free before tax kicks in.
Most of the “exemptions” a business benefits from are really reliefs and allowances. That’s not a technicality, because it decides whether you need to make a claim. For a fuller breakdown of what you can claim and how, our guide to claiming tax relief in the UK walks through the main reliefs in detail.
What tax exemptions and reliefs can a business claim?
A UK business can reduce its tax across several taxes at once, and the biggest savings usually come from corporation tax reliefs, capital allowances, and payroll reliefs. None of these are automatic. You claim them, and the amount you keep depends on doing so correctly.
Here are the main ones worth knowing.
Corporation tax: the small profits rate and marginal relief
Companies don’t all pay the same rate of corporation tax, and lower-profit companies pay less. For the 2026/27 year the small profits rate is 19% on profits up to £50,000, and the main rate is 25% on profits over £250,000.
Profits between £50,000 and £250,000 fall into marginal relief, which tapers the effective rate up from 19% to 25% rather than jumping straight to the top rate. So a company on £100,000 of profit pays an effective rate somewhere in between, not a flat 25%.
The £50,000 and £250,000 limits are shared between associated companies under common control, so if you run more than one company the thresholds shrink. It’s a common trap. If you want to bring the rate down legitimately, our guide on how to pay less corporation tax covers the practical levers.
Capital allowances: the Annual Investment Allowance
When you buy equipment, machinery, vans, or an office fit-out, you can usually deduct the full cost from your taxable profits through the annual investment allowance. The limit is £1 million per accounting period, and it’s now permanent, so there’s no expiry cliff to plan around.
At the 25% main rate, £1 million of qualifying spend is worth up to £250,000 off your corporation tax bill in a single year. Most SMEs never come close to the £1 million cap, which means the full cost of their kit is deductible in the year they buy it.
Timing matters here. The allowance is based on the accounting period in which you incur the expenditure, so a purchase made just before your year end can pull the relief forward a whole year.
Employment Allowance: cutting your employer NI bill
If you employ staff, the Employment Allowance reduces your employer National Insurance bill by up to £10,500 for 2026/27. Employer NI runs at 15% on earnings above £5,000 a year, so for a small payroll this allowance can wipe out the bill entirely.
There’s one big exclusion. A company whose only employee is also its sole director can’t claim it. Take on one more employee above the £5,000 threshold and you become eligible.
You have to claim it each tax year through your payroll software, and if you’ve missed it in the past you can usually backdate up to four years.
Don't assume your accountant or software has switched the Employment Allowance on by default. It's one of the most commonly missed reliefs, and unclaimed years are real cash you can still recover.
Other reliefs worth checking
Depending on what your business does, you may also be able to claim R&D tax credits, the SEIS and EIS schemes for investors, and Business Asset Disposal Relief when you sell. These are reliefs rather than exemptions, and each has its own eligibility rules and claim process. Our guide to entrepreneurs’ tax relief covers the disposal side in detail.
What’s the difference between VAT exemption and zero-rating?
VAT exemption and zero-rating both mean no VAT is added to the price, but they’re not the same thing, and the difference decides whether you can reclaim VAT on your own costs. Exempt supplies sit outside VAT entirely. Zero-rated supplies are taxable, just at a rate of 0%.
That gap has a real consequence. If you only make exempt supplies, you can’t register for VAT and you can’t reclaim the VAT you pay on your purchases. If you make zero-rated supplies, you can register and reclaim input VAT, which often puts you in a refund position.
Feature | Exempt supplies | Zero-rated supplies |
VAT charged to customer | None | 0% |
Counts toward VAT registration threshold | No | Yes |
Can you reclaim input VAT | No | Yes |
Examples | Insurance, finance, education, some property | Most food, children’s clothing, books, exports |
If most of your sales are exempt, you’ll usually be a partly exempt business once you incur VAT on any costs linked to those sales, and there are rules on how much of that input VAT you can recover.
Getting the classification right is where businesses trip up, because charging VAT on a supply that should be exempt, or the reverse, creates problems with HMRC. Our guide on when not to charge VAT explains the common situations where it doesn’t apply.
Who qualifies and how do I claim?
Eligibility depends entirely on which exemption or relief you’re after, and almost all of them need an active claim rather than applying automatically. The route to claim varies by tax, so it’s worth knowing where each one lives.
Here’s how the main business claims work:
- Corporation tax reliefs (small profits rate, marginal relief, capital allowances): claimed on your Company Tax Return, the CT600, filed with HMRC after your year end.
- Annual Investment Allowance: claimed in the capital allowances section of your CT600 for companies, or your Self Assessment for sole traders and partnerships.
- Employment Allowance: claimed each tax year through payroll software via an Employer Payment Summary.
- VAT treatment: handled through your VAT registration and quarterly returns under Making Tax Digital for VAT.
The thing to watch is the deadline and the paperwork. A relief you’re entitled to but don’t claim on the right return, on time, is simply lost, and HMRC won’t apply it for you.
Records matter too. To claim capital allowances you need proof of the purchase and its date. To support VAT treatment you need clean invoices, which is far easier when your bookkeeping runs through software like Xero or QuickBooks rather than a shoebox of receipts. If you’re unsure which reliefs apply to your setup, our accounting services team can review your position.
How Sleek helps with tax exemptions
Most businesses don’t overpay tax because they’ve done anything wrong. They overpay because a relief went unclaimed, a VAT supply was misclassified, or an allowance was left on the table at year end.
Sleek’s accountants handle the claims for you, from capital allowances and corporation tax reliefs to getting your VAT treatment right, so you keep what you’re entitled to. If you want a specialist to review where you stand, our tax accountant service is built for exactly that.
Get a clear picture of every exemption and relief your business can claim, with Sleek handling the numbers.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
450,000
businesses worldwide.
satisfaction rate from
16,000 surveyed clients.
FAQs on tax exemptions UK
Are charities exempt from all UK taxes?
No. Charities get relief from most taxes on income and gains used for charitable purposes, plus 80% mandatory business rates relief, but they still pay VAT on most purchases and tax on any non-charitable trading profit. They must also be recognised by HMRC for tax purposes to claim these reliefs, which isn’t the same as registering with the Charity Commission.
Do I pay tax on income below the Personal Allowance?
No. The standard Personal Allowance is £12,570 for 2026/27, so income up to that level is tax-free for most people. It reduces by £1 for every £2 you earn over £100,000, disappearing entirely at £125,140. Company directors often combine a modest salary with dividends to use this allowance efficiently, which is a planning point worth getting advice on.
Is there a tax-free allowance when selling business assets?
Yes. The Capital Gains Tax annual exempt amount is £3,000 for 2026/27, so gains up to that figure are tax-free. Beyond it, Business Asset Disposal Relief can cut the rate you pay when selling all or part of a qualifying business. The annual exempt amount has fallen sharply in recent years, so larger disposals now need more careful timing.
Are exports exempt from UK VAT?
No, they’re zero-rated, not exempt, and that difference works in your favour. Goods you export outside the UK are taxable at 0%, which means you charge no VAT but can still reclaim the VAT on your related costs. You’ll need evidence of export, such as shipping documents, to support the zero rate if HMRC asks.
Can a small business be exempt from VAT registration?
Yes, in two situations. If your taxable turnover stays below £90,000 you don’t have to register at all. If you only make zero-rated supplies, you can apply for an exemption from registration even above the threshold. Both mean you can’t reclaim input VAT, so weigh that against the admin saved before deciding.
View more
Is my company exempt from corporation tax if it makes no profit?
Not exempt, but no tax is due. Corporation tax applies to profits, so a loss-making year produces no bill. You still have to file a Company Tax Return, and losses can often be carried forward to reduce tax in profitable years. Dormant companies with no activity at all can be treated differently and may not need to file.
Is inherited money tax-free for a business owner?
Usually yes for the person receiving it. Inheritance Tax is paid by the estate, not the beneficiary, with a nil-rate band of £325,000 before any tax applies. Business Relief can reduce or remove the IHT on qualifying business assets passed on, which matters if your company forms part of your estate. GOV.UK’s Inheritance Tax guidance sets out the full conditions.
