Corporation tax is one of the biggest costs of running a limited company. But it’s also one of the most manageable – if you know the rules and plan ahead.
The strategies in this guide are all legitimate, all HMRC-compliant, and all available to most limited companies. Some are straightforward. Others require more careful planning. None of them involve anything aggressive or risky.
Whether you’re a small owner-managed business or a growing company with employees, here’s how to make sure you’re not paying more corporation tax than you need to.
Know Your Rates First
Before looking at how to reduce the bill, it’s worth understanding how it’s calculated. For the 2026/27 financial year, the rates are:
- Small profits rate: 19% on taxable profits of £50,000 or less
- Main rate: 25% on taxable profits over £250,000
- Marginal relief: applies between £50,000 and £250,000, creating a gradual increase
If your company has associated companies (broadly, companies under common control), the £50,000 and £250,000 thresholds are divided equally between them. Two associated companies means the small profits threshold drops to £25,000 each.
1. Claim All Allowable Expenses
The most basic – and most commonly under-claimed – way to reduce your tax bill is to make sure every legitimate business expense is deducted from your profits.
Allowable expenses must be incurred “wholly and exclusively” for the purposes of the trade. The range is wider than many directors think. Common deductions include:
- Staff costs: salaries, employer NIC, pension contributions, bonuses, training
- Premises costs: rent, business rates, utilities, insurance, repairs and maintenance
- Professional fees: accountancy, legal advice, consultancy
- Marketing: advertising, website costs, PR, sponsorship
- Travel: business travel (not commuting), accommodation, subsistence
- Office costs: stationery, software subscriptions, phone and internet
- Finance costs: bank charges, loan interest (for non-property businesses)
The key is record-keeping. If you can’t evidence the expense, you can’t claim it. Keep receipts, invoices, and bank statements – and make sure your bookkeeping captures everything throughout the year, not just at year end.
2. Maximise Capital Allowances
When your company buys assets – equipment, machinery, vehicles, IT hardware – the cost isn’t deducted as a day-to-day expense. Instead, you claim capital allowances, which provide tax relief on the expenditure.
The main allowances available in 2026/27 are:
- Annual Investment Allowance (AIA): 100% relief on up to £1 million of qualifying plant and machinery per year. Most small and medium companies will never exceed this.
- Full expensing: 100% first-year relief on qualifying new main-rate plant and machinery. This is a permanent measure for companies and covers assets the AIA doesn’t reach.
- 100% FYA for zero-emission cars and EV charge points: available until 31 March 2027 for corporation tax purposes.
- 40% first-year allowance: a new allowance for qualifying main-rate assets, introduced from 1 January 2026. Cars, second-hand assets, and assets for overseas leasing don’t qualify.
- Writing-down allowance (main pool): 14% per year on a reducing balance basis (reduced from 18% in April 2026).
- Writing-down allowance (special rate pool): 6% per year, covering integral features of buildings and long-life assets.
- Structures and Buildings Allowance (SBA): 3% per year on the cost of constructing, renovating, or converting non-residential structures.
Timing matters. Buying an asset just before your year end means the allowance is claimed in the current period. Buying it a week later pushes the relief into the next year. If your profits are higher this year than next, that timing decision can save real money.
3. Use R&D Tax Reliefs
If your company carries out qualifying research and development, tax relief can reduce your bill – but the rules changed substantially from April 2024 and many older guides are now out of date.
The old SME and RDEC schemes have been replaced by two new regimes for accounting periods beginning on or after 1 April 2024.
The Merged R&D Expenditure Credit Scheme
This is the default scheme for all companies. It provides a taxable expenditure credit at a headline rate of 20% of qualifying R&D expenditure.
Because the credit is taxable, the net benefit to a company paying the main 25% rate is around 15% of qualifying spend. Companies on the small profits rate (19%) receive an effective benefit of around 16.2%.
Enhanced R&D Intensive Support (ERIS)
Available only to loss-making SMEs where at least 30% of total expenditure is on qualifying R&D.
ERIS provides an enhanced deduction of 186% of qualifying costs and a payable credit of 14.5% on surrenderable losses – giving an effective benefit of up to 27% for qualifying companies.
What Qualifies?
R&D relief applies where a company is seeking an advance in science or technology and has to overcome genuine technical uncertainty. It’s not limited to lab-based research – it can cover developing new products, processes, software, or services.
Qualifying costs include staff, employer NIC, pension contributions, software, consumables, data licences, cloud computing, and some subcontractor costs – though overseas R&D expenditure is now largely excluded.
HMRC has been increasing scrutiny of claims. Good record-keeping is essential. First-time claimants and companies that haven’t claimed in the last three years must also submit an advance notification to HMRC.
Our article on R&D tax credits explains the eligibility criteria in more detail.
4. Make Pension Contributions
Employer pension contributions are one of the most tax-efficient tools available. They’re deductible as a business expense for corporation tax purposes, they’re not subject to employer NIC, and they don’t create a personal income tax charge for the recipient (within limits).
The annual allowance for total pension contributions is £60,000, including both employer and personal contributions. Unused allowance can be carried forward from the previous three years.
For director-shareholders, pension contributions often form part of a broader profit extraction strategy alongside salary and dividends. Getting the balance right between these three elements can produce meaningful tax savings – but it needs to be looked at in the round, not in isolation.
5. Use Losses Strategically
If your company makes a trading loss, it can be used to reduce corporation tax – but the ordering rules and restrictions mean it’s not as flexible as some guides suggest.
The main options are:
- Current-period offset: trading losses can be set against the company’s total profits (including investment income) in the same accounting period
- Carry back: losses can be carried back to the previous 12 months and set against that period’s profits, potentially generating a refund
- Carry forward: unused losses can be carried forward indefinitely against future profits from the same trade
- Group relief: if your company is part of a group, losses may be surrendered to another group company in the same period
- Terminal loss relief: if the company ceases trading, losses from the final 12 months can be carried back up to three years
There are ordering rules that determine how losses must be applied, and for larger companies the amount of carried-forward losses that can be used in any one period may be restricted. The detail matters – blanket assumptions about loss flexibility can lead to costly errors.
6. Time Income and Expenditure Wisely
Timing can affect when profits are recognised and therefore when tax is paid. But company accounts are prepared on the accruals basis, so income and expenses must be recognised in the correct period – you can’t simply move figures around by changing when invoices are sent.
That said, genuine commercial timing decisions can make a difference:
- Accelerate planned expenditure: if you were going to buy equipment, commission marketing, or pay bonuses anyway, doing so before the year end means the deduction falls in the current period rather than the next
- Year-end bonuses: a bonus that is properly declared and owed before the year end is deductible in that period, even if it’s paid shortly after. The key is that it must be a genuine obligation at the balance sheet date.
- Capital investment timing: buying assets just before your year end allows you to claim capital allowances a year earlier
These should always be real business decisions, not artificial manoeuvres. HMRC’s guidance on business profits makes clear that expenses must reflect the correct accounting treatment.
7. Plan Your Profit Extraction
For owner-managed companies, how you take money out of the business has a direct impact on the company’s taxable profits and your personal tax bill. The three main routes are salary, dividends, and pension contributions – and the optimal mix depends on your circumstances.
From April 2026, dividend tax rates are 10.75% (basic), 35.75% (higher), and 39.35% (additional). The dividend allowance remains at just £500. Employer NIC is 15% on salary above the £5,000 secondary threshold. These rates all interact with each other.
Most director-shareholders pay a salary up to or around the personal allowance (£12,570) to avoid income tax while maintaining NIC credits, then extract further profits as dividends. But the right answer depends on your profit level, your personal income from other sources, and whether the company should be retaining profits for reinvestment.
Our tax planning service is designed to help with exactly this kind of analysis.
8. Explore Niche Reliefs
Beyond the main strategies, there are several lesser-known reliefs that apply to specific situations:
- Patent Box: companies that earn profits from patented inventions can elect for those profits to be taxed at an effective rate of 10% rather than the main corporation tax rate. The patent must be granted by the UK Intellectual Property Office or the European Patent Office.
- Creative industry reliefs: companies in film, TV, animation, children’s TV, and video games can claim expenditure credits under the Audio-Visual Expenditure Credit (AVEC) or Video Games Expenditure Credit (VGEC) regimes. These replaced the older tax reliefs from 1 January 2024, and new productions starting from 1 April 2025 must use the new credits. Separate reliefs also exist for theatre, orchestras, and museums.
- Land Remediation Relief: companies that clean up contaminated land acquired from a third party can claim a deduction of up to 150% of qualifying expenditure.
- Employee share schemes: schemes like Enterprise Management Incentives (EMI) can provide corporation tax deductions when options are exercised, alongside personal tax benefits for employees. EMI eligibility rules have been expanded from April 2026.
These reliefs are specialist – they require careful assessment and often professional advice to claim correctly. But for companies that qualify, they can materially reduce the tax bill.
What Not to Do
A few things worth being cautious about:
- Don’t manufacture expenses. Claiming personal costs as business expenses is one of the most common triggers for HMRC enquiries. The “wholly and exclusively” test is strict.
- Don’t overclaim R&D. HMRC has been rejecting a growing number of R&D claims and opening enquiries into poorly evidenced submissions. A weak claim can be worse than no claim at all.
- Don’t confuse tax deferral with tax saving. Some strategies (like timing of expenditure) defer when tax is paid rather than reducing the total bill. That’s still useful, but it’s not the same thing.
- Don’t ignore the personal tax side. A strategy that reduces corporation tax but increases your personal tax bill (or your employer NIC cost) may not save anything overall. The company and personal positions need to be looked at together.
How Double Point Can Help
Reducing your corporation tax bill isn’t about finding one big trick – it’s about getting dozens of small things right, consistently, every year.
Claiming every expense, timing capital purchases well, structuring your pay correctly, and making sure you’re not missing reliefs you’re entitled to.
At Double Point, we handle corporation tax returns for companies across a range of industries. We don’t just prepare the numbers – we actively look for ways to reduce your bill within the rules. From capital allowances and R&D claims to profit extraction planning and loss relief, we make sure nothing is left on the table.
Book a free consultation with us today and let’s see where the savings are.