You reduce your corporation tax bill legally by claiming every allowable business expense, using capital allowances such as the £1,000,000 Annual Investment Allowance, paying yourself a tax-efficient salary and employer pension, and claiming reliefs like R&D where you qualify. Corporation tax is charged on your profit, so anything that legitimately lowers profit lowers the tax.
For the 2026/27 financial year the main rate stays at 25% on profits over £250,000 and the small profits rate is 19% on profits up to £50,000. Profits between those two figures are taxed at 25% with Marginal Relief, giving an effective rate of 26.5% on that slice. Cutting profit out of the marginal band is often where the biggest savings sit.
Know Which Corporation Tax Rate You Actually Pay
The rate you pay decides how much each deduction is worth. The thresholds below are shared across any associated companies you control, so a group structure can quietly push you into a higher band.
| Taxable profit | Rate that applies (FY 2026/27) |
|---|---|
| £0-£50,000 | 19% (small profits rate) |
| £50,001-£250,000 | 25% less Marginal Relief, 26.5% effective on the band |
| Over £250,000 | 25% (main rate) |
If your profit is £60,000, the £10,000 above the lower limit is effectively taxed at 26.5%. Shifting £10,000 of genuine cost or pension contribution into the year therefore saves you £2,650, not £1,900.
1. Claim Every Allowable Business Expense
HMRC lets you deduct costs incurred "wholly and exclusively" for the trade. Owners routinely leave money on the table simply by not recording them.
- Salaries, employer's NIC and staff costs
- Accountancy, legal and professional fees
- Software, subscriptions and bank charges
- Use of home as office, and business travel
- Business mileage in your own car at 55p per mile for the first 10,000 miles, then 25p
Keep digital records. An unrecorded receipt is a deduction you can never claim back.
2. Use Capital Allowances on Equipment
When you buy plant, machinery, computers or commercial vehicles, claim them through capital allowances rather than treating them as ordinary expenses.
- The Annual Investment Allowance (AIA) gives 100% relief on up to £1,000,000 of qualifying capital spend in the year.
- Full expensing gives companies a 100% first-year deduction on most new and unused plant and machinery, with no annual cap.
Timing matters. Bringing a planned purchase forward before your year-end pulls the relief into the current period.
3. Pay Yourself a Tax-Efficient Salary and Dividends
Most director-shareholders take a modest salary plus dividends. Salary is a deductible expense for the company; dividends are not, but they sit outside National Insurance.
- A salary up to the National Insurance secondary threshold keeps employer NIC low while preserving the corporation tax deduction.
- The dividend allowance is £500 for 2026/27, the first £500 of dividends is tax-free in your hands.
- Above that, dividends are taxed personally, with the bands tied to the £12,570 personal allowance, the £50,270 higher-rate threshold and the £125,140 additional-rate threshold.
The right salary/dividend split depends on your numbers, so model it rather than guess.
4. Make Employer Pension Contributions
Employer pension contributions are one of the cleanest ways to reduce a corporation tax bill. Paid by the company directly into a director's pension, they are normally an allowable expense and escape both income tax and National Insurance, subject to the annual allowance.
For a company in the marginal band, a £20,000 employer contribution can save £5,300 in corporation tax while building your retirement pot.
5. Switch to an Electric Company Car
Petrol and diesel company cars carry heavy Benefit-in-Kind charges. A fully electric car is taxed at just 4% BiK in 2026/27, well below the rates on most petrol and diesel models, making it cheaper to run through the company, and the company can usually claim a 100% first-year allowance on a new EV.
6. Claim R&D Tax Relief if You Innovate
If your company is solving genuine technical or scientific uncertainty, new software, processes or products, you may qualify for Research & Development relief, which enhances your qualifying spend and can reduce tax or generate a credit. Records and a sound methodology are essential, so take advice before claiming.
7. Time Income and Costs Around Your Year-End
Profit is measured per accounting period. Where commercially sensible, you can defer invoicing, bring forward allowable spend, or pay bonuses and pensions before the year-end to land deductions in the period where they are worth most. Never invent costs, HMRC penalties wipe out any saving.
You can confirm the current rates and Marginal Relief mechanics on HMRC's guidance at Corporation Tax rates and allowances (GOV.UK).
Frequently Asked Questions
Is it legal to reduce my corporation tax bill?
Yes. Reducing tax by claiming legitimate expenses, allowances and reliefs is tax planning, and it is entirely legal. It only becomes a problem when costs are fabricated or income is hidden, that is evasion, not planning.
What is the corporation tax rate for 2026/27?
The main rate is 25% on profits over £250,000 and the small profits rate is 19% on profits up to £50,000. Profits between £50,000 and £250,000 are taxed at 25% with Marginal Relief, an effective 26.5% on that band.
Do pension contributions reduce corporation tax?
Yes. Employer pension contributions paid by the company are normally an allowable business expense, so they reduce taxable profit and therefore the corporation tax due, within the annual allowance.
Can I claim my home office against corporation tax?
You can claim a reasonable proportion of home-working costs, or use a simplified flat rate, provided the expense is incurred for the business. Keep evidence of how you arrived at the figure.
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Talk to a Specialist Before Your Year-End
The largest savings come from planning before your accounting period closes, not after. Our corporation tax services help UK limited companies pay the right amount and not a penny more. Get in touch and we'll review your figures and map out the legitimate reliefs available to you.
