How can I reduce my corporation tax
UK limited-company guide · Source check: . General information, not individual tax advice. Ask your accountant or tax adviser to confirm the treatment for your company and accounting period.
You can reduce a UK company’s Corporation Tax by claiming deductions and reliefs it genuinely qualifies for, recording income and costs in the correct period, and using available loss relief appropriately. A tax deduction reduces taxable profits: it does not reimburse the full amount spent.
Plan around the business need and cash flow first. Do not buy an unnecessary asset, take on unsuitable finance or move an invoice date simply to chase a tax saving.
Start with the correct Corporation Tax rate
The standard rules are not “19% below £50,000 and 25% on everything above £50,000”. Eligible companies can receive marginal relief between the lower and upper limits.
| Taxable profits | How the standard calculation works |
|---|---|
| £50,000 or less | The small profits rate is 19%. |
| More than £50,000 but less than £250,000 | Corporation Tax is calculated at 25%, then reduced by marginal relief where the company qualifies. |
| £250,000 or more | The main rate is 25%; no marginal relief remains at the upper limit. |
The limits are reduced for shorter accounting periods and associated companies. Certain distributions affect the calculation through “augmented profits”. Close investment-holding companies and other excluded cases need separate consideration.
Review legitimate deductions and reliefs
Separate running costs from capital purchases
Review genuine business running costs such as stationery, relevant training, marketing and qualifying business travel. Costs need to meet the applicable tax rules, including the “wholly and exclusively” test where relevant. Keep invoices and records of the business purpose.
Do not automatically treat equipment purchases as ordinary running expenses. Laptops, machinery and other lasting assets may need capital-allowance treatment. Private benefits and expenditure with a non-business purpose need separate consideration.
Check capital allowances before buying equipment
The Annual Investment Allowance (AIA) can provide a 100% deduction for qualifying plant and machinery, within the £1 million annual limit. The allowance is adjusted for non-standard periods, and sharing rules can apply to related companies. Business cars do not qualify for AIA; qualifying vans and other equipment may do.
Companies may also qualify for full expensing on eligible new, unused main-rate plant and machinery, or the 50% first-year allowance for qualifying special-rate assets. Conditions and exclusions apply, including restrictions concerning cars and assets bought for leasing out. Do not claim more than one allowance on the same expenditure.
Ask your accountant to check the asset, contract, expenditure date and available allowance before committing. Selling an asset later can also have tax consequences.
Inspect the capital-allowance guidance ↓
Review employer pension contributions
Employer contributions to a registered pension scheme may reduce company profits when they satisfy the tax rules. Relief normally follows contributions actually paid, not merely an amount accrued in the accounts. Large increases can be subject to spreading rules, and director or connected-person remuneration needs appropriate review.
The member’s pension annual allowance is a separate issue from the company’s deduction. The standard annual allowance is £60,000 for 2026/27, including employer contributions, but tapering or the money purchase annual allowance can reduce it. Carry-forward may be available subject to conditions.
The pension lifetime allowance was abolished from 6 April 2024. That does not remove all pension limits: tax-free lump-sum allowances and other rules still apply.
Inspect employer-relief and pension-limit guidance ↓
Use the current R&D rules—not the old 230% headline
For accounting periods beginning on or after 1 April 2024, the relevant regimes are the merged R&D expenditure credit (RDEC) scheme and enhanced R&D intensive support (ERIS). The merged scheme offers a 20% taxable expenditure credit on qualifying costs; this is not a 20% tax-free cash saving.
ERIS is restricted to eligible loss-making, R&D-intensive SMEs. It can provide an additional 86% deduction and a payable credit of up to 14.5% of the surrenderable loss, subject to the scheme’s conditions and caps. Special provisions can apply in Northern Ireland.
A product being new to your company is not enough. The work must meet the tax definition of an advance in science or technology involving qualifying scientific or technological uncertainty. Keep evidence of the uncertainties, work undertaken and qualifying costs.
Inspect current R&D eligibility and claim requirements ↓
Recognise income correctly and review real losses
Delaying an invoice does not, by itself, move earned income into a later period. HMRC’s guidance explains that income is generally earned when goods are provided or services performed; invoice and payment dates do not determine recognition. Apply the relevant accounting standards and tax adjustments.
If the company has a genuine trading loss, your accountant should review available relief against current profits, carry-back or carry-forward. Ordinary trading-loss carry-back is generally against the preceding 12 months, subject to conditions; other loss types and terminal losses have different rules. Do not assume every accounting loss creates an immediate refund.
How business finance costs affect tax
Classify the finance agreement and each charge correctly. The monthly payment is not automatically the amount deductible for Corporation Tax.
| Cost or transaction | What to check |
|---|---|
| Business-loan interest | Interest can be relieved under the company loan-relationship rules, subject to the relevant accounting treatment and restrictions. Repaying loan principal is not an ordinary deductible financing expense. Relief for an asset bought with the borrowing is a separate question. |
| Arrangement, broker and legal fees | Qualifying costs of obtaining or managing a company loan can fall within the loan-relationship rules. Timing may follow the accounts rather than an immediate deduction for the entire cash payment. Check the purpose of each fee. |
| Invoice-finance charges | Distinguish interest or discount charges from service fees, reserves and advances. A charge may be deductible under the relevant rules; an advance or release of retained invoice proceeds is not itself a deductible cost. Do not assume the entire facility movement is an expense. |
| Leases and hire purchase | Operating-lease rental deductions generally follow the correct accounting treatment, subject to tax adjustments. Finance leases, long-funding leases and hire purchase can be treated differently. For qualifying hire-purchase assets, AIA may be available when the asset is brought into use; interest is excluded from the capital-allowance cost and considered separately. |
| Company-car hire | Car-hire deductions can be restricted according to emissions and the applicable hire-period rules. Do not assume every vehicle lease payment is fully deductible. |
| Bad or doubtful trade debts | For companies, qualifying trade-debt impairment is dealt with under loan-relationship rules. A late invoice or the use of invoice finance does not automatically establish a deduction. Keep appropriate impairment evidence and consider connected-company restrictions, recoveries and the terms of the finance agreement. |
| Professional advice | Ordinary business accountancy or advice costs may qualify, but not every advisory fee is a revenue deduction. Fees relating to capital transactions or non-business matters need separate treatment. |
Inspect interest, fees and leasing guidance ↓ · Inspect debt and professional-fee guidance ↓
Your year-end review checklist
Tick the preparation steps you have completed before speaking to your accountant. This is an organisational checklist, not an eligibility assessment.
Prepare a useful tax-planning conversation
Common questions
Can paying dividends reduce Corporation Tax?
No. Dividends are not deductible business costs when calculating Corporation Tax. Salary, employer pension contributions and dividends have different company and personal tax consequences; compare the overall position with your adviser.
Can I deduct wages paid to a family member?
A family relationship does not automatically prevent a deduction, but the payment must be genuinely for the trade. Keep evidence of actual work, responsibilities, hours and commercial remuneration. A payment motivated by a private purpose can be disallowed; normal employment and payroll obligations still need to be addressed.
Does buying a laptop always reduce profits immediately?
No. A laptop bought as a lasting business asset may need capital-allowance treatment rather than being treated as an ordinary expense. A qualifying AIA claim may provide a full deduction, but eligibility, timing and any relevant restrictions must be checked.
Is there one deadline for all tax-relief claims?
No. Deadlines and procedural conditions vary. For some R&D claims, HMRC must be notified within a claim-notification period ending six months after the end of the period of account. An additional information form is also required before or on the same day as the Company Tax Return containing the claim. Ask your adviser to confirm the exact sequence and deadlines; a general “claim within two years” statement is not enough.
Should I spend money just to reduce the tax bill?
No. A deduction normally saves only part of the cost, and the cash-flow timing may differ from the tax treatment. First decide whether the expenditure is commercially useful and affordable; then consider the tax consequences.
HMRC sources and important qualifications
These links support the explanations above. They are general guidance, not confirmation that your company qualifies. Rules, contracts and accounting periods matter; an individual claim needs professional review.
Corporation Tax rates and marginal relief
Check associated companies, the accounting-period length, augmented profits and exclusions before using the headline bands.
Capital purchases, AIA and full expensing
AIA excludes cars. Full expensing has its own conditions; asset and agreement details matter.
Employer pension deductions and personal allowances
Company deductibility and the member’s annual-allowance tax position are separate questions. The old lifetime allowance is not a current blanket pension limit.
R&D schemes, eligibility and procedural deadlines
The scheme depends on the accounting-period start date and qualifying activity. Notification and additional-information requirements can affect a valid claim.
Interest, finance fees and leasing
The character and accounting treatment of each charge matter. A capital repayment is not the same thing as an interest or service charge.
Trade-debt impairment and professional fees
Impairment, connected-party rules and the capital/revenue distinction prevent a blanket promise of relief.
Income timing, losses, family wages and dividends
Changing an invoice date does not override revenue-recognition rules. Loss relief and family remuneration also have conditions.
Source check: 7 October 2026. No accountant review or HMRC approval of this article is claimed. Recheck the guidance before relying on it for a later period.
Discuss the funding. Confirm the tax treatment separately.
Nexgen Business Finance can discuss business-funding options for your purpose, timing and cash-flow needs. Ask your accountant or tax adviser to confirm any Corporation Tax deductions or reliefs before you commit.
Discuss business funding →Nexgen is a credit broker, not a lender. Finance is subject to assessment and lender criteria. Security or personal guarantees may be required. This guide does not promise a tax saving, funding approval or a particular rate.