Limited companies pay corporation tax (CT) on their annual profits. Being aware of all lawful ways to reduce your tax bill through the many types of tax relief available is the way forward since non-compliance is a path that frequently ends in calamity.
Seeking the advice of an accountant with expertise in business law and tax will ensure you maximise savings while remaining compliant.
At Cloudco, we always advise taking the compliance path. Here, we offer readers a detailed map to tax-deductible business expenses and the most tax-efficient ways to maximise capital allowances for the 2025–26 tax year. We recommend investment in research and development and look at how different employment schemes can attract tax credits and protect your staffing levels simultaneously.
Getting professional tax advice to ensure savings in your CT bill while remaining compliant is advised. If your business is currently outside the scope of corporation tax, you might consider incorporating your business to take advantage of the wider range of allowable business expenses and tax-planning opportunities available to limited companies.
How much is corporation tax?
The main corporation tax rate is 25% for companies with profits over £250,000 in 2025–26.
When the main rate of corporation tax applies at 25%, only companies with taxable profits over £250,000 pay this rate. CT remains at 19% for companies with profits of £50,000 or below, with the small-profits rate (SPR) still in effect.
Between these two rates, a system of marginal relief applies, calculated as follows:
Say your annual profit is £80,000 in the 2025–26 tax year:
- Multiply your annual profit by the main 25% rate = £20,000.
- Subtract your annual profit from the £250,000 threshold = £170,000.
- Multiply step 2 by the marginal rate multiplier of 3/200 = £2,550.
- Subtract step 3 from step 1: £20,000 – £2,550 = £17,450.
In this example, corporation tax will be £17,450, representing a tax increase over the small profits rate. This means there is an effective CT rate of around 26.5% between £50,000 and £250,000.
Compliant ways to reduce CT liability is something every business should be interested in. Paying the least amount of tax possible compliantly means having a long-term and informed strategy.
So, let’s now look at the top five ways to reduce CT within the current system lawfully and compliantly.
What are some ways to reduce Corporation Tax?
Below are just five of the many ways to reduce your corporation tax liability compliantly depending on circumstances.
(1) Corporate tax planning
In business, corporate taxes are a large part of your trading costs, hence why tax planning is the framework holding together your structure for business growth. Running and growing a business is hard work, the success and, hopefully, the expansion of your business probably is and should be your priority, but there’s a work-life balance to achieve too.
Corporate tax planning is about having ongoing, long-sighted, and year-round insight into the company’s financial health and well-being. This type of planning should form part of your business plan and act as the lynchpin of your business’s financial strategy and plans for growth.
Hiring a small business tax specialist or accountant is the first step to reaping considerable gains and saving on corporation tax. An online accountant like Cloudco will, among many other services, be able to advise on business decisions that affect your finances, generate financial statements, reports and forecasts, calculate your tax, and prepare your returns.
It is very unlikely there will be any miscalculation, error, or fines for late filing. Wouldn’t you agree that this is money well spent? Plus, accountancy fees are a legitimate business expense that no business can afford to ignore since, in addition to lowering your CT bill, their expertise will introduce ways to reduce tax compliantly.
An accountant is near-certain to save you money in taxes—identifying tax reliefs for a start—and will ensure compliance to protect the integrity of your company. Besides, what business owner needs the tiresome and time-consuming task of accounting when their focus should be on managing the business? Hence, we have put corporate tax planning at the top of this list!
Managing corporation taxes correctly positions your business for growth. Tax law is complicated, so ideally you will know the rules and the law by heart. While online bookkeeping and accounting software is a fantastically useful tool, it’s not able to tutor you on all the legal rules around tax, which are tricky and constantly changing.
Opportunities for maximising cis tax savings for limited companies are as easy to miss as the pitfalls that can land you in trouble. It is easy to misunderstand the rules unless you have accounting qualifications and know-how.
All this justifies the efficacy of putting your business’s finances in the expert hands of an accountant like the CloudCo Accountancy Group. We help hundreds of small businesses and owner-managed limited companies make advanced plans to manage CT efficiently.
Our expert corporate tax planning services include:
- Establishing the most tax-efficient business structure
- Planning corporate tax efficiently according to business circumstances
- Setting up payroll and employee benefits
- Assistance in VAT planning
- Identifying tax-efficient opportunities and available tax relief
- Optimising capital or revenue tax
- Capitalising on acquisitions relief using capital allowances
- Reducing tax liability on disposals
- Assistance with overseas business ventures
- Maximising business tax benefits per your industry
- Compliance with tax return legislation including CT self-assessment
- Interacting and acting on your behalf with HMRC as required
Corporate tax mitigation is not a short-term fix it is a long-term strategy. The objective is to achieve maximum gains involving revenue taxes, CT, capital gains tax, and inheritance tax. Work in this area can include VAT, national insurance contributions, and stamp duty as well, but a more common tax planning technique is to increase available cash in the business for investment or working capital.
A useful tip as year-end approaches is to bring forward any proposed expenditures to the current tax year instead of waiting until the following year.
Taking all the tax credits your business is eligible for is another seemingly simple strategy many overlook simply because no expert had identified or explained the opportunity before.
(2) Pension contributions
Tax relief on employer pension contributions is a straightforward way to achieve a deduction from profits, allowing the sums deducted to be a legitimate business expense. Hence, pensions are one of the most efficient ways for businesses to reduce their CT bill (and for employees, one of the best ways to save money for the future tax-free).
Companies’ deductions for employee or director pensions must be made via payroll from total profits before the accounting period ends. Deductions are allowed only in the chargeable period in which contributions are paid and cleared—accrued liabilities do not qualify.
For 2025–26, the annual pension allowance remains at £60,000 for most individuals, subject to tapering if income is above £260,000. Pension advice costs up to £500 per employee a year remain exempt from tax and National Insurance.
Employers should consider the personal tax position of employees and directors before making large contributions. There is a process to decide if spreading relief for large contributions is needed; the Pension Tax Manual and an accountant can provide detailed guidance.
(3) Benefit-in-kind (BIK)
Different BIK rules apply depending on the benefit type (company cars, health insurance, travel, childcare).
For vehicles:
- Vehicles strictly for business use (e.g., trucks) have no BIK and are accounted for as capital expenses.
- Vans used for business and private purposes incur a fixed BIK rate on the vehicle and on fuel.
- Cars used privately and for business incur BIK based on list price, emissions, and fuel type, not actual private use.
- Ultra-low emission vehicles (emissions <50g CO₂/km and range over 130 miles) have a BIK rate as low as 2% in 2025–26.
- “Pool cars,” shared among employees for business use and kept on company premises, are exempt from BIK.
(4) Claiming expenses against Corporation Tax
Expenses claimed must be incurred ‘wholly and exclusively’ for business. Records and receipts must be kept digitally or physically for at least six years.
Popular allowable expenses include:
- Accommodation and subsistence on business travel (reasonable costs, no set limits, apply overseas rates when relevant)
- Accountancy fees related solely to company accounts (not personal tax returns; personal elements must be declared as BIK and attract NIC at 13.8%)
- Advertising and marketing (including PR, websites, networking)
- Bank and overdraft charges that are authorised (interest on business loans and authorised bank account charges)
- Business mileage for employees using their vehicles at HMRC-approved rates; VAT reclaim usually possible
- Business publications, subscriptions to HMRC-approved professional or trade bodies
- Relevant business insurances (professional indemnity, employer’s, public liability)
- Purchase and maintenance of business vehicles and equipment qualifying under capital allowances or Annual Investment Allowance (AIA is £1 million)
- Charitable donations to approved charities (monetary, land, property, equipment, sponsored events)
- Childcare schemes including Tax-free Childcare and workplace nursery costs
- Staff Christmas parties and other events within HMRC limits (£150 per head maximum)
- Work clothing required for specific roles (e.g., uniforms, protective wear)
- Incorporation and pre-trading expenses (within 7 years prior to trading)
- Entertainment and hospitality strictly limited, mainly for overseas business clients
- Equipment and office technology (computers, printers, software)
- Eye tests and glasses for employees using display screens regularly
- Food and subsistence on business trips (if away longer than five hours)
- Gifts and trivial benefits (up to £50 per employee per event, within strict rules)
- Home office costs (flat rate £6 per week or actual costs with evidence)
- Hire purchase agreements in company name
- Business phone, landline, and broadband costs
- Private health insurance and annual health assessments (health assessments tax-free if offered to all staff; private medical insurance is a taxable BIK with NIC)
- Professional subscriptions to HMRC-approved bodies
- Staff training that improves current job skills (overseas training limited and highly scrutinised)
- Relocation expenses if incurred due to work moves
- Relevant life insurance policies, providing tax-free lump sums upon death or terminal illness
- Salaries and employer NIC up to national insurance thresholds (currently £12,570 personal allowance and £12,570 NIC threshold)
- Stationery, postage, printing for business use
(5) Research and Development
The R&D scheme supports companies advancing knowledge or capability in science or technology.
- The current R&D Expenditure Credit (RDEC) system provides a taxable credit of 20% of qualifying expenditure for many companies, with higher relief available for R&D-intensive SMEs.
- Projects may include new products, processes, or services, or improvements on existing ones across many sectors.
- Claims must be submitted digitally and include detailed technical justifications and financial records.
- Claims must be made within two years of the CT accounting period end.
- Expert help from accountants familiar with R&D claims is strongly recommended.
How to apply for R&D tax relief?
We recommend that businesses should seek expert help from their accountant when applying for R&D tax relief. Alternatively, an application can be made while submitting a CT return by putting and ‘X’ at box 99 (for SMEs) and at the improved expenditure in box 101.
Having notified HMRC, the business must then explain their reasons for a specific R&D activity to qualify for a tax relief. The time range within which a business must apply for relief is two years after the end of the CT accounting period. If a business believes that it qualifies for a R&D tax credit claim, it must be able to show adequate reasoning and records for the project.
Conclusion
Here we have provided many different ideas on how to reduce your CT bill and how to benefit your business with some great incentives for growth and to attract and retain the best staff.
Without any bias or obligation, we have tried to clarify the importance of having a trained professional – an accountant or tax specialist – at your side to help your business run efficiently, compliantly, and effectively.
Compliance with the UK tax system should be your number one priority, for little is possible in terms of pursuing any of these reliefs or tax credits, let alone investment opportunities, unless you have lifted the weight and worry of any hint of non-compliance.
Cloudco gives businesses control by lifting the burden of bookkeeping and accounts. Business growth is what we aim for with our clients by providing Xero software to help you keep your books in good order and then providing our expertise to reinforce your business.
Our objective is not just to reduce your CT tax bill in all lawful ways, but to always be on hand with advice and ideas and with an eye to the future, always looking to how we can help you manage your business tax, finances, and policies and procedures better. Contact us today, for tax advice and CT accountancy services.
If you’re interested in learning more about tax-saving strategies, check out our helpful blogs:
- Can you avoid CGT on a buy-to-let property?
- Is it more tax efficient to operate as a limited company?
- What are tax-saving ways to save for retirement?
FAQs
How to reduce corporation tax?
There are multiple ways to reduce the corporation tax depending on different circumstances like corporate tax planning, pension contributions, Benefit in Kind (BIK) and more.
How to avoid corporation tax?
If you are earning upto an extent where paying corporation tax is necessary, then there is no way to avoid this.
How to lower corporation tax?
You can plan your income in such a way that it falls less in the income brackets.
