Ten Legal Ways to Reduce Your Corporation Tax Bill

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Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.

Short answer: You can reduce Corporation Tax legitimately by claiming every allowable expense, using capital allowances, making employer pension contributions, paying a reasonable salary, claiming R&D relief where eligible, using losses, timing purchases and keeping good records. Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between.

Key facts

Small profits rate	19% up to £50,000
Main rate	25% above £250,000
Marginal relief	Between £50,000 and £250,000
AIA	£1 million a year
Full expensing	100% first-year relief on qualifying plant

How Corporation Tax is calculated

Corporation Tax is charged on the company’s taxable profit, which is revenue minus allowable expenses and reliefs. For 2026/27 the rate is 19% for profits up to £50,000 and 25% for profits above £250,000, with marginal relief reducing the effective rate between the two figures. The limits are divided by the number of associated companies, so a group of companies can reach the main rate sooner.

Because the tax is a percentage of profit, the bill falls whenever profit falls legitimately. The aim of tax planning is not to hide profit, but to make sure that every legitimate deduction and relief is used.

1. Claim every allowable expense

The simplest saving is the most overlooked: claim every cost that qualifies. Directors often forget software subscriptions, professional fees, training, home working allowances, mileage and small equipment purchases. Over a year, these can add up to thousands of pounds, and each pound claimed saves 19p or more in tax.

Use accounting software that captures receipts as you go. It is far easier than trying to reconstruct a year of spending at the deadline.

2. Use capital allowances

When you buy equipment, the Annual Investment Allowance gives 100% relief up to £1 million a year. Full expensing offers 100% first-year relief on qualifying new plant and machinery for companies. Time a large purchase to fall before the year end, and the deduction applies to that year.

Check that the asset qualifies and is used in the business. Cars are generally excluded from full expensing and the AIA unless they are vans or similar commercial vehicles.

3. Pay a sensible salary

A salary is deductible, so it reduces profit. A director’s salary, plus employer National Insurance, is a company expense. Where a director’s spouse works for the business at a fair rate, their salary is also deductible. Balance the saving in Corporation Tax against the extra National Insurance and income tax cost, and use our salary calculator to model the result.

4. Make employer pension contributions

A company pension contribution is a deductible expense with no National Insurance. For a company paying 19% Corporation Tax, a £10,000 contribution saves £1,900. For a company in the marginal relief band, the saving is higher, because each extra pound of profit is taxed at an effective rate of up to 26.5%. Contributions can be made up to the annual allowance of £60,000, with carry forward.

5. Claim R&D tax relief if you qualify

Companies that develop new products, processes or software, or improve existing ones, may qualify for research and development relief. The scheme has been merged into a single regime, which offers an above-the-line credit for qualifying expenditure. Claims need a clear technical narrative and careful cost records, so they are best prepared with specialist support. Not every company qualifies, but many software and engineering firms do.

6. Use trading losses

A loss in one year can be carried forward and set against future profits, or carried back a year in some circumstances. Do not ignore a loss in a start-up year, because it can wipe out the tax on a profitable year to come. Claim the loss in the CT600, and keep a record of how much remains available.

7 to 10. Timing, training, trivial benefits and good records

Four more habits complete the list. Pay deductible costs before the year end rather than after, because the deduction goes into the year you pay or incur it. Invest in training that maintains or updates the skills you already use in the business. Give staff and directors trivial benefits of up to £50 per person per occasion without tax. And keep good records, because a claim you cannot prove is a claim you can lose.

Avoid aggressive schemes promising dramatic savings. HMRC publishes lists of avoidance schemes, and a scheme that fails can leave you with a tax bill, interest and penalties. Well-documented legitimate planning almost always beats cleverness.

What not to do

Be careful with anything that promises tax savings that seem too good to be true. Schemes involving loans from offshore trusts, contrived share structures or disguised remuneration have caught many small company owners, and HMRC has pursued participants for years afterwards. Never record a personal cost as a business expense hoping it will not be noticed, and do not backdate documents.

If your accountant proposes a plan, ask whether it is based on a relief that is written into legislation and designed for small business, such as capital allowances, pension contributions or R&D credits. Those are safe. Anything that depends on a clever interpretation is not.

Planning at the year end

A good time to look at Corporation Tax is about two months before your year end, when you can still change the outcome. Review your profit to date, any large purchases you were planning, and any pension contribution you were considering. Compare the position with and without those actions.

An accountant can produce a short projection, so you can decide how much to spend, how much to contribute and what dividend is possible. The saving from a well-timed decision is often many times the cost of the advice.

Putting the ten steps into a routine

Corporation Tax planning works best as a routine rather than a one-off. Each quarter, review your bookkeeping for missed expenses. At six months, check your profit against your expectations and decide whether a pension contribution or equipment purchase makes sense. Two months before the year end, ask your accountant for a projection of the tax bill. After the year end, file the CT600 on time and pay by the deadline. Building these habits costs little and typically saves more than any single clever idea.

Frequently asked questions

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